The banks fear that a recession may be coming and so lend a little less. Businesses fear a recession is coming and find out that the banks are less willing to lend and so invest less. Suppliers to businesses, sub-contactors and employees find that they are wanted less and paid less and so the suppliers do not hire; the sub-contractors go bust and the employees are now unemployed. Because so many are now struggling debt default goes up making banks more cautious about lending and so the descent into recession is assured.
Like the proverbial Curate’s egg this story of the road to recession is good in parts; it neatly blames the banks and perhaps implicates the government but wherever the blame for the recession lies it is not with you! Well, it is your fault – the failure at any point in the rather simplistic model presented here is the cause of your own demise: if you fail to pay your suppliers and they fail to pay the bank and you find you cannot borrow – your fault! Without labouring the point if everyone sits on their hands and stops spending a hideous recession is assured.
“They were suddenly saying to people with nothing but paper representations of wealth, “Wake up, you idiots! Whatever made you think paper was so valuable?”
Kurt Vonnegut – Galapagos
Now is not the time to cancel contracts, stop investment, stop hiring and stick your head in the sand hoping it will all blow over or that someone else will take responsibility; least of all our government. Should your clients stop using your services because they are afraid that they will run out of money you will go bust – you just will no matter how insulated you feel and the same applies to those who rely on you for work and payment for that work. An old friend of mine used to say “Money is made round to go round” it sounded like nonsense at the time but the older I get the truer it seems.
Money as a res is worthless, it is the movement of money which gives it value: we can either save into recession or spend into recovery.
When things pick up (they always do) and you find that you want to call on the supplier who has previously met your needs and you again need their produce, expertise, help or support to drive your recovery will they be there for you?