ocamlback

"Just a note, recession strictly defined means 2 quarters of decline. If there is 1 quarter of decline, then 1 of gain, then another of decline, there is no recession."

True, but long periods of sluggish growth can be worse than a relatively short recession. Better to get the pain over with quickly than to spread it out over a long period - just ask someone from Japan about the 1990 to ~2004 period of very sluggish growth there. I'd much prefer a 1 or 2 year severe recession than a 14 year epoch of sluggish growth (and it can oscillate as you mention, going from positive GDP to negative and back again and still not be classified as a recession)

Lowering rates won't help the current situation much if at all. The current problem is a crisis of confidence. That confidence can only be restored if the big financial outfits like Citibank come clean about their exposure to MBS and bad debt. As long as they continue to hide their exposure such as by creating this "super SIV" or whatever they're calling it this week, the problems will just fester and confidence will not return - we'll end up with a stagnant economy like Japan had from the early 90's till about 2004.

"@shayan: My team and I have 6 months of savings, meaning we can pay the bills for 6 months before we either need income or investment. Do you think that is long enough?"

I'm not @shayan, but I'll put in my 2cents: no. It's not enough. Given the current economic conditions and the realities of startups you should have more like 18 to 24 months worth of expenses saved up. Because: 1) you don't want to have to go hat in hand to VC at a very vulnerable time and 2) you don't want to have to go back to work in the middle of your development cycle because you ran out of money.

Yes, you may think it'll only take six months till you get some cashflow, but it'll likely take longer than that.

Now is as good a time as any to do a startup, but do make sure you're adequately capitalized.

6 months is fine in normal circumstances, but if you're going to quit a very safe job and start a company of your own you probably want to have a good deal more than six months worth of expenses on hand - probably more like 2 years given the current economic outlook.

Thing is, it's gonna take several months to develop the product (probably code in this case) and then you have to try to market it and find paying customers - that takes time. And then customers might want additional features and changes. More time. When it's all said and done it's likely to take a lot longer than six months to get to the point where there is some cash coming in. You don't want to be in a situation where you just exhausted your six months cash and now you have to go back to work in the middle of your product development cycle. Give yourself some breathing room and have 18 to 24 months expenses on hand.

Recession - yep, in fact we're probably in one already. Too much wealth is being destroyed in this mortgage crunch/housing decline. Depression, though? Not likely - though I have heard very well connected folks say that we're probalby at the greatest risk of a depression since the 30's. Still, that risk is probably something less than 5%.

However, it's quite possible that this will be a rather deep recession - probably the deepest since the 1980 - 1982 recession. I was in college then. It was very difficult to find work of any kind.

The question on the table is should you leave your likely very safe government job to do this startup. I'll guess this is a software startup of some sort, and that your main expense is living expenses as you develop the code. That being the case, you should probably have at least 2 years worth of living expenses in the bank prior to doing this. A credit-crunch recession such as the one shaping up now means that it's going to be very difficult to borrow money. So do plan to self-fund as much as possible right now. Also, who are your target customers? Will they have trouble coming up with the money to pay you if we get a serious recession? - this is something you should think about.

If you don't have enough money on hand to be able to live for a couple of years, then I'd probably caution you to wait until you do have that much saved up. In the meantime, while you continue to work and save you'll have time to find out if this is just going to be a mild recession or something much more serious.