There are two types of recessions, and the United States is likely to see one that is nothing like the one that occurred in 2008

According to economist Stephen Miran, recessions are a 'unavoidable feature of economic life,' and they don't all look like the Great Financial Crisis. Some have a more 'garden-variety' feel about them.

For good reason, younger generations connect the word "recession" with disaster.

Millions of Americans lost their homes and jobs during the Great Recession, which lasted from December 2007 to June 2009. It was the greatest economic downturn since the Great Depression of the 1930s, and it scarred several cohorts who graduated from college or graduate school with little hope of finding a solid job, and it took nearly a decade for the labor market to fully recover.

If you don't count 2020's short-lived COVID-induced slowdown, 2008's collapse is the only actual recession that a major portion of the population has ever experienced. As a result, when billionaires and investment banks make grim predictions of coming economic disaster or a "big" recession, most Americans freak out.

Recessions, on the other hand, are a natural part of business cycles, and while expert predictions of a "everything bubble" or a global economic disaster abound, not every economist sees the worst-case scenario.

Experts such as Harvard economist Jason Furman point out that a recession is far from certain; and even if one does occur, most economists think that the chances of it being a once-in-a-lifetime all-out collapse like 2008 are minimal.

"Recessions are an unavoidable reality of economic life," said Stephen Miran, cofounder of Amberwave Partners and a former senior adviser at the US Treasury Department. "In prior cycles, we were lucky to have gone a long time without a recession. But, you know, recessions have been the norm for the vast majority of economic history."

Miran believes the US economy will have a "garden variety recession," rather than a financial crisis like the one that occurred in 2008.

Not every recession is as bad as the one in 2008

It's crucial to keep in mind that not all recessions are the same: While they all cause enormous misery and result in widespread job losses, disproportionately affecting the poor, some are worse than others.

And, despite recent stock market volatility and increased possibilities of a recession, there are plenty of reasons to be optimistic about the US economy's prospects, even if growth slows for several quarters.

Kelly Bouchillon, a senior partner at Sound View Wealth Advisors in Savannah, Ga., told Fortune, "We're a little more positive than doom and gloom for sure." "There has never been a time when corporate America has had more cash on its balance sheets." According to bank polls, consumers are not overburdened with debt. There's also a lot of money in people's bank accounts. As a result, there appears to be some spending power."

"I believe the doom and gloom aspect of this may have caused the equities markets to potentially overreach to the downside," he continued.

While each economic slump is unique, Miran explained that the US economy has gone through two distinct types of recessions since WWII ended.

The first is a "garden-variety" recession, in which the economy "overheats," leading to an increase in inflation. The Federal Reserve responds by raising interest rates and "crushing demand to try to kill inflation," resulting in a recession.

According to Miran, this is the most typical sort of recession the US has seen in postwar history, but there is another, far more dangerous type of recession known as a "balance-sheet recession."

When this happens, a "debt bubble" develops, causing households and consumers to spend a large part of their income paying down debt rather than stimulating the economy. This form of recession results in a slow recovery and widespread unemployment. Does this ring a bell?

"In a typical recession, it takes roughly 10 months from the low point in unemployment to recover to pre-recession employment levels," Miran added. "It took around three times that much, or 32 months, to rebound to pre-recession unemployment levels during the dot-com [bubble] and the global financial crisis."

Miran went on to say that he believes the former is more plausible than the latter.

"What we don't have right now is the cascade defaults that result from too much debt," he explained.

Bouchillon feels that a recession like the one experienced in 2008 is improbable, and he's not even sure we'll have one at all.

"Remember, the main thing in 2008 was really borderline fraud in the economy because you had all these individuals borrowing money [to buy homes] who really couldn't afford it," he explained.

In 2008, bad debt circulating in the financial system caused a "implosion," although the banking industry has since undergone a number of adjustments, the most notable of which being the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

The bill established the Consumer Financial Protection Bureau, a whistleblower mechanism, and stress test requirements for banks, which assist determine if these institutions have enough capital to weather an economic downturn.

While President Donald Trump has scaled back some of the Dodd-Frank Act, regulations against debt bubbles are still stronger now than they were in 2008.

These measures, along with significantly stronger household balance sheets, according to Bouchillon, will help prevent a repeat of the 2008 financial crisis. He claims that stagflation, in which economic growth slows but inflation remains high, is a greater threat to the US economy.

However, don't rule out the possibility of increased hazards

While many analysts believe the United States will avoid a repeat of the 2008 recession, there are still a number of growing hazards that investors and consumers should be aware of.

First, in April, the personal savings rate—or the percentage of disposable income saved each month by consumers—fell to 4.4 percent, the lowest level since September 2008, when Lehman Brothers declared bankruptcy. According to statistics from the St. Louis Federal Reserve, the personal savings rate averaged 11.8 percent from 1959 to 2019.

Second, inflation is still around four-decade highs, and the Federal Reserve plans to keep raising interest rates until there is "clear and persuasive" evidence that inflation is under control, as Fed Chair Jerome Powell puts it.

When boosting interest rates in the past, the central bank has struggled to avoid a recession, according to Bouchillon.

"The Federal Reserve's track record of trying to target inflation by raising rates is that we end up in what you might call a technical recession close to 80% of the time." So I believe that's a possibility," he stated.

"There's going to be pain that we cause," Marc Goldwein, senior vice president and senior policy director for the Committee for a Responsible Federal Budget, told Bankrate in April, even if the Fed doesn't instigate a recession in order to combat growing consumer prices.

"That is true, but inflation is excruciating. You can't keep boosting the economy indefinitely and expect it to be sustainable. He went on to say, "You have to pull off the Band-Aid before it gets any worse."

Finally, investment banks continue to raise concerns about the growing likelihood of a recession, as well as its possible impact on employment and the stock market.

While most aren't calling for a recession outright, many are warning that the danger of one has increased, and even well-known bulls have recently changed their tune on the possibility of a downturn.

For months, Mark Haefele, UBS Global Wealth Management's chief investment officer, has dismissed fears of a recession, advising investors to avoid "a hasty exit from markets" in a May 13 note, for example, because the firm's "central scenario" is that "a recession will be avoided over the next 12 months."

In a Friday research note, Haefele took a different tone when describing the Fed's efforts to achieve a "soft landing" for the US economy, in which inflation is controlled without triggering a recession.

"The road to getting there is a long one. We could be in for a long period of above-target inflation if Fed policymakers misread the strength of the US economy. We will be in a recession if they overstate it. And we have no way of knowing for sure which path we're on," he wrote.

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