Recession Sighting: Build Your Cash Horde

Michael Panzner of Financial Armageddon discussed a personal finance article in the Wall Street Journal as a sign that it was becoming increasingly acceptable to use the R word:

it seems that at least some in the media are coming around to the idea that an economic slowdown is on the cards…. In “When a Recession Threatens, Cash Suddenly Has Cachet,” Jonathan Clements, the Wall Street Journal’s personal-finance columnist, offers some generally useful advice.

If the economy turns sluggish, it will be rough on those who lose their jobs, while offering buying opportunities to those still employed. But either way, there’s one thing you’ll want — and that’s access to cash.

Taking advantage. A mountain of cash would, of course, be a great comfort if you’re laid off. But even if you hang on to your job, a little extra money in a high-yield savings account or a money-market fund could prove mighty useful…

Reclaiming savings. With all this in mind, stockpile savings.

But where? If you think your job is in jeopardy, forget funding the kid’s college account and don’t make extra-principal payments on your mortgage. The problem: If you lose your job, it may be hard to get your hands on this money.

You might also be tempted to skip your 401(k) plan. But in fact, sticking enough in your 401(k) to get your employer’s full matching contribution should remain your top financial priority…

Got additional money to save? Stuff it in a savings account or a money fund held in a regular taxable account. If you lose your job or buy a vacation home, this is the first place you should go for cash.

Now there were admittedly a few spending ideas thrown in there for those who were particularly well cushioned. But the messsage is loud and clear: tighten your belt. Savings is aligned with comfort.

But this very behavior en masses is precisely the sort of thing that triggers a recession. Not that I think recessions are all bad; sometimes the alternatives are worse. But this exhortation in the Journal, and in particular, its emphasis on the virtues of cash, is a real departure from its “all growth all the time” mantra.

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