As The Old Saying Goes: "save Money For A Rainy Day"

As the old saying goes: “save money for a rainy day”

The economic cycle theory, that attempts to explain and somehow forecast the long terms pattern changes in the market economy’s economic activity, enlighten in general the 4 major stages of economies natural behavior which are expansion, prosperity –where booms take place–, contraction and recession.

As this concept state, those stages are common natural behavior that all market economies face, and we cannot control them as they are part of the macroeconomic environment. That is why, even in the less-risk markets, we must consider an implied risk from which we cannot be exempt of.

It is impractical to consider a cero-risk state on any market economy, particularly nowadays when we talk about a new age of global interconnected and interdependent economy, where there are more aspects of risk to take into account.

Regarding how to handling the post-recession stage to start the expansion, it is all about release the economy, taking off as much barriers as possible, offering all the necessary guarantees in order for the market to start trusting again. Therefore, it is not sustainable to start taking all the measures to prevent the next crisis right after emerging from one.

There is a very low possibility for a crisis to take place just after another; however this does not mean that we need to take away any regulations and leave the economy as the laissez faire state, because in this situation without any precise guideline, it is known that a crisis is more likely to appear.

We need to focus at first in the economic restoration, and with this I do not mean to impose barriers or restrict the consumption and the investment because the situation would worsen; moreover when in this type of scenarios consumers and investors are afraid about the future.

The idea of a reserve fund as a backup in case of emergency is not that bad, indeed we should have a plan b to cope with periods of scarcity, nevertheless we must also find a balance between them, ensuring by creating this contingency plans applicable in the long run do not affect our welfare in the short term.

Basing us on statistical evidence, will be able for us to, in some way, predict and prepare ourselves, saving from the prosperity where there are surplus and not precisely when we are starting the expansion. In other words applying what the old saying goes: “save money for a rainy day”

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