The state of our economy is absolutely terrible, and it seems to be getting worse by the day. Jobs are hard to find, cost-cutting measures have stalled, and corporations are sitting on obscene amounts of cash that they never would have had if not for the pressure to meet ever-rising sales targets and income goals.

Many experts agree that we’re in an economic bubble right now. When bubbles exist, people tend to get overeager to buy and spend money, thinking that things can’t possibly go down — buying a house is always a smart investment!

But when those spending patterns eventually come crashing down, there will often be a lot of pain left in its wake. We’ve seen this happen before, and it doesn’t seem like we’ll be escaping this time.

Fortunately, you can prepare for the coming downturn, but only if you start building up your savings and investing today. This will help you avoid being too invested or unprepared as the market dips.

Building up your savings

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We’ve discussed how important it is to have a large amount of saved up money in the past. And while it may feel tempting to treat yourself during these times, doing so could actually hurt your finances later on.

That’s because if the markets continue to drop, many companies will begin to cut back on their spending, which could mean lower paychecks for you.

Massive layoffs

A growing number of companies are announcing mass layoffs, with each other or within their own organization. Recent examples include Tesla laying off 1,400 people and General Motors closing down its national car brand Chevrolet after it terminated an agreement to sell some of its brands to Volkswagen.

Other high profile cases this year included Chipotle shutting down operations for two weeks due to food safety concerns, IHOP being forced to close all of its restaurants in North America because it was unable to find enough staff, and Papa John’s having to shut down its website and call centers as it laidoff almost 4000 employees.

These are just a few of the many instances where large corporations have made headlines by offering significant pay cuts and/or furlough days to their workers. There have been more than twenty-five thousand such announcements since November alone!

It is very difficult to determine how many job losses can be directly attributed to our current economic crisis, but we do know that excessive spending has caused the problem, so cutting back on things like eating out and buying gadgets that you don't need will help mitigate the worst effects.

Declining consumer confidence

According to surveys conducted by various organizations, people are not as confident in the economy as they were just a few months ago. When asked about their overall financial situation, how much money they have compared to last year, whether or not they feel rich, and if they would describe themselves as wealthy, almost every survey has at least one question with negative responses across the board.

Most of these questions ask respondents what kind of answers they gave to the preceding question several weeks earlier. By comparing the same respondent’s answer then to now, we get an idea of how likely it is that person was feeling more positive about the state of their finances back then than she/he does today.

If you compare this respondent to her/his self from six months ago, then you can determine if there is a significant drop in economic confidence. If so, you can assume that things are going poorly for most Americans.

Surveys that focus only on individuals often ask about changing income levels as well. It may be hard to know exactly why someone’s monthly income dropped unless he/she tells you. For those who do tell you, though, probably because they lost their job, maybe business fell off, etc., you can assume that something bad happened and thus the lower income level.

There are many reasons an individual could lose his/her job, but all of them affect economic activity in general.

Declining GDP

The average size of an American company has steadily declined for over two decades, now at just under $250 million. This is even worse than it sounds because bigger companies are more valuable!

The reason why smaller companies are so attractive is due to competition. As there are fewer companies in America with lots of money, people have to be willing to pay higher prices for their products or services to make a profit.

This situation can’t last forever though as there aren’t that many rich people out there anymore. When everyone else is investing money, there isn’t much left for businesses to spend!

Another factor contributing to lower growth rates is our current economic system. Wealthy individuals and big corporations are able to invest their money in things such as capital goods (like factories) or entertainment supplies which help keep the economy running smoothly, but middle-class and low income Americans are not.

They are spending the money they do have quickly since it will soon run out.

Declining job prospects

The chances are very high that you will be unemployed for some time to come, if ever you find yourself with a steady paycheck again. This is not only bad for your wallet, but also for your morale!

Many experts agree that we’re currently in our third or even fourth recession since World War II. That means we’ve gone through at least two economic downturns within the past six years.

The good news is that these recessions always seem to have a clear beginning and end. You can usually tell when things get really bad and then they start getting better.

But what about the in-between period? There aren’t any hard and fast rules for how long that takes, so it can feel like nothing happens.

It’s important to remember that while the economy may look bleak now, it’s still pretty strong compared to what it was back during the Great Recession of 2008 and 2009.

Rising interest rates

As we mentioned earlier, rising interest rates are one of the biggest canaries in the economic coal mine. Interest rates are charged when you take out loans to finance your daily or monthly expenses.

Usually, the lower the rate, the more expensive it is for you as a borrower to access credit. So, even though lenders may offer you very low-interest loan accounts, they’re still quite expensive because you have to pay to borrow the money!

Rising borrowing costs indicate that people are not readily giving up their hard-earned cash to invest in new projects or companies. It also signals that people are spending less due to fear of an economy that is slowing down or collapsing.

We could see another round of savers withdrawing their money from the market, which would only make things worse for investment markets.

Rising inflation

With all of these costs, it is easy to get confused as to just how bad the economy has become. Inflation is one of the most important numbers to watch when assessing the health of our economic system.

Inflation can occur for a variety of reasons, but one of the biggest factors behind rising prices is increased demand due to higher consumption or lower supply due to less people working.

As we have seen with this pandemic, people are staying home and consuming fewer goods and services. This reduced supply helps cause price rises because there are not as many products available to be sold.

However, there are also some causes of inflation that are outside of the market’s control. These include increases in the cost of raw materials or energy used in production.

Experts will often compare recent trends in inflation to what they call “normal.” When looking at historical data, you should note that it was never really normal.

Potential recession

The other day, I heard someone say that we are in a bubble. They described a situation where people keep buying more expensive things because they believe that the price will go up even higher.

This person said that we are now in a period of time when this theory is true. We are in a scenario where if the prices of these over-expensive items were to drop, many would purchase them as soon as possible before the item runs out!

In fact, some experts predict that a full blown recession could happen within the next six months due to our current economic state.

Recessions occur when there is too much spending in the economy. People stop spending money which limits how much business companies can do.

Most people agree that we are currently in an overly-spending mode so a recession cannot be predicted for at least one year. It takes at least two years for businesses to re-balance their budgets after a recession so it may take several months or even years until we see a decrease in consumption.

During a recession people usually have cut back on shopping but this isn’t always the case. Some people spend less during a downturn, but most people don’t. This is why it can be difficult to tell whether the economy is improving or getting worse- you never know what people will do.

Bad credit

Recent developments have made it impossible to tell if our country is in an economic boom or bust. The growth we’ve experienced can be attributed to either strong business expansion or simply increased spending due to higher demand.

One indicator that has become increasingly popular is looking at how bad people’s credit has gotten. Some experts say that we are now in an era of “creditor dominance,” where large corporations and wealthy individuals control the money supply through their borrowing.

By having more available credit, they're able to spend heavily at this time because there's still plenty for them to buy.

But what happens when there isn't? We've already seen some indications of this — such as when companies stop buying goods, which creates a scarcity of those products, and thus raises prices.

A second sign is unemployment, which remains high even though many believe the economy is improving. If employers were willing to hire anyone with no qualifications, then the economy would be performing better, but they aren't.

So instead, they choose from among the few candidates who are qualified, leaving behind those without jobs. This situation can last for months or years, depending on whether someone finds employment soon enough.