Is the recession stopping? - Cryptoz18

❶ US economic crisis, its history and signs of advice

An economic crisis in the United States is a severe and sudden upheaval in any part of the economy. It could be a stock market crash, a rise in inflation or unemployment, or a series of bank failures. They have severe effects, although they do not time and time again lead to a recession.

America seems to have an economic crisis every 10 years or so. They are difficult to remove because their causes are different. However, the results are the same over and over again. They incorporate high unemployment, a near bank collapse, and an economic contraction. These are all signs of a recession. But a financial crisis need not lead to a recession if it is tackled early.

❷ What is an economic contraction?

🅐 Definition and examples of an economic contraction

An economic contraction happens when domestic production, like GDP, decreases. It leads to a decrease in other regions, such as private income, production and sales. Unemployment rates may rise.

A current sample case of a significant economic contraction was that caused by the covid-19 pandemic. As a result, the Economic Span Dating committee of the National Bureau of Economic Inquiry concluded.

🅑 How an economic contraction works

An economic contraction is caused by a loss of confidence that curbs demand. An event, such as a stock market correction or crash, triggers it. But the real cause precedes the well-publicized event. For example, it could be precipitated by an increase in interest rates that reduces capital spending.

Investors sell off activities, driving prices down and reducing funding from huge corporations. Companies cut prices and then lay off workers. That depletes consumer spending, creating more business losses and layoffs. To understand this economic downturn, one has to be aware of the causes of the economic lapse, particularly the causes of a recession.

A contraction ends when prices fall enough to attract renewed demand. The central bank's monetary policy and the government's fiscal policy can end a contraction more quickly. They will lower interest rates and taxes and increase the money supply and spending. These policies are an integral part of a territory's strategies to provide the best unemployment solutions.

🅒 Reasons for an economic recession

Economic downturns are caused by a loss of business and consumer confidence. As confidence falls, so does demand. A recession is a turning point in the economic period once the current economic increase reaches its peak, reverses and becomes an ongoing economic contraction.

A slowdown in gross domestic product growth is constantly cited as a cause of a recession, but it is more of a warning sign that a recession is already underway. Gross Domestic Product is only reported after a quarter ends, so the recession may already have been underway for two months once Gross Domestic Product turns negative. The causes are likely to be the following:

• Loss of confidence in investment and the economy

Loss of trust causes customers to stop trading and go into defensive mode. Panic is set in once a critical mass moves toward the exit. Organizations post fewer job ads and the economy creates fewer jobs. Retail sales are slow. Producers cut their attitude to the drop in requests, which increases the unemployment rate. The federal regime and the central bank have to intervene to restore confidence.

• High interest rates

Interest rates limit liquidity (money that is available to invest or spend) once they rise. The Federal Reserve has commonly raised interest rates to defend the cost of the dollar. To exemplify, he did it to fight the target stagflation of the 1970s, and this contributed to the 1980 recession.

• A stock market crash

A sudden loss of investment confidence can produce a subsequent bear market, draining capital from organizations.

• Falling house costs and sales

Homeowners may be forced to minimize their costs once they lose equity and are currently unable to obtain second mortgages. This was the initial trigger for the Huge Recession of 2008. Banks ultimately lost money on complex investments that were based on underlying home values, which were in decline.

• Build requests slow down

One predictor of a recession is a decline in construction demands. Durable goods orders began to fall in October 2006, long before the 2008 recession hit.

• Deregulation

Lawmakers have the potential to trigger a recession once they remove relevant safeguards. The seeds of the S&L crisis and subsequent recession were planted in 1982 once Garn-St. The Germain Depository Institutions Law was approved. The law removed limitations on loan-to-value interaction for such banks.

• Bad administration

Bad business practices commonly cause recessions. The savings and loan crisis produced the 1990 recession.
Well over 1,000 banks, with total assets of $500 billion, went bankrupt as a result of land swaps, questionable loans, and illegal occupations.

• Cost and salary controls

The imposition of wage and cost controls has occurred frequently in history, yet it has only caused a recession once.

President Richard Nixon froze wages and costs to stem inflation in 1971, but employers fired workers because they were not allowed to undercut their wages. Demand fell as families had lower incomes. Organizations could not minimize costs, so they laid off more workers, leading to the 1973 recession.

• Post-war slowdown

The US economy slowed down after the Korean War, causing the 1953 recession. Similar downturns after World War II caused the 1945 recession.

• Credit crises

A credit crunch ensued in 2008 once Bear Sterns reported losses due to the collapse of 2 hedge funds it enjoyed. The funds were heavily invested in collateralized debt obligations, and banks that were in a similarly overinvested condition panicked once Moody's downgraded their debt. They stopped lending to each other, building a massive credit crunch.

• Once asset bubbles burst

Asset bubbles occur once the costs of investments such as gold, occupations or the house are inflated beyond their sustainable cost. The bubble itself sets the stage for a recession to occur once it bursts.

• Deflation

Costs that fall with time have a worse impact on the economy than inflation. Deflation lowers the cost of goods and services sold in the market, which encourages individuals to wait to market until costs fall. Demand falls, causing a recession. Deflation caused by trade wars made the Great Depression worse.

🅓 Doubts:

• What causes interest rates to fall throughout a recession?

Interest rates sometimes fall throughout recessions as central banks use monetary policy to encourage the rise. A decrease in interest earnings is an incentive to invest instead of keeping cash in a bank account. At other times, interest rates fall throughout a recession as investors flock to the relative stability of bonds. Such buying pressure can eliminate interest rates.

• How do governments try to drive growth through a recession?

Monetary policy, like lowering interest rates, is one way governments try to push growth through a recession. Fiscal policy is another tool, such as tax cuts to encourage customer spending. Governments also spend taxpayer funds directly in the economy, exemplifying, hiring workers for government projects or supplementing wages and benefits for low-income workers.

❸ History of the economic crisis

These 6 crises help you recognize the warning signs of the next one. You will see when government action prevents complete economic collapse and when it makes things worse.

• The Great Depression of 1929

The first tip has been a stock market bubble throughout the Roaring 20s. Capable investors could have started making profits in the summer of 1929. In October, the stock market crash of 1929 started the Great Depression of 1929. It wiped out the life savings of millions of individuals. It hasn't been the last time a stock market crash caused a recession.

One of the reasons for the Depression has been the Dust Bowl. This decade-long drought contributed to famine and homelessness. Another cause has been the use of contractionary monetary policy by the Federal Reserve. He wanted to defend the cost of the dollar, then based on the gold boss. The Fed's policies made deflation. The Consumer Cost Index fell 27% between November 1929 and March 1933, according to the Bureau of Labor Statistics.

The effects of the Great Depression ravaged America for 10 years. House costs fell 67%. At its lowest point in 1933, the gross domestic product (GDP) had fallen 29%. Falling costs drove many organizations out of business. The unemployment rate reached a high of 25% in 1933.

Massive government spending on the New Deal and World War II ended the depression. However, it took the debt/GDP ratio to a record 113%. If global warming creates another massive drought, a huge Depression could happen again.

• Stagflation of the 1970s

The OPEC oil embargo of 1973 marked the beginning of the stagflation crisis. The government's attitude has turned it into a full-blown crisis of 2-digit inflation AND recession. The economy shrank -4.8% in the first quarter of 1975, according to the Bureau of Economic Survey (BEA). In 1975, unemployment reached a higher of 9%. Costs skyrocketed after President Nixon decoupled the dollar from the gold boss. To curb inflation, he froze wages and costs. This caused organizations to fire workers who could not discharge wages or increase costs.1

Fed Chairman Paul Volcker used a contractionary monetary policy to put an end to the crisis. He raised interest rates to stifle inflation. The watchdog signals of the crisis were the announcements by OPEC and Nixon about their proposed disruptive activities.

• 1981 recession

High interest rates to curb inflation made it the worst recession since the Great Depression. The economy contracted throughout 6 of the 1 quarters of the crisis. The worst has been the second quarter of 1980 with -8%. Unemployment was above 10% for 10 months. It rose to 10.8% in November and December 1982, the highest rate in any current recession.

President Ronald Reagan cut taxes and increased spending to end it. That doubled the national debt over his 8 years in office.

• Savings and loan crisis of 1989

Charles Keating and other unethical bankers made this crisis. They obtained capital through the use of deposits guaranteed by the federal regime for dangerous real estate investments. 5 senators accepted campaign contributions in exchange for decimating the banking regulator so it couldn't figure out criminal occupations. There was no advice to the public generally because the banks lied about their business dealings. The Savings and Loan Crisis ended in the closure of about half of all savings and loan banks in the United States.

The crisis engineered a recession in July 1990. In the fourth quarter, the economy shrank -3.6%. Unemployment reached a high of 7.8% in June 1992. The following bailout added $124 billion to the national debt. It belongs to the 10 worst booms and busts from 1980.

• September 11 attacks

4 terrorist attacks occurred on September 11, 2001. They stopped air traffic. Both attacks that destroyed the World Trade Towers closed the New York Stock Exchange until September. Once it reopened, the Dow fell 684.81 points. There was no advice for the general public.

The crisis returned the USA to the recession of 2001, prolonging it until 2003. The economy contracted 1.1% in the first quarter and 1.7% in the third. Unemployment hit a record high of 6.3% in June 2003. Some of this was not due to the attacks themselves. It has been thanks to the uncertainty about whether the USA is going to go to war. The resulting War on Terror added $2 trillion to the national debt.

• 2008 financial crisis

The financial crisis of 2008 has been worse than any other crisis except the Depression. The first warning came in 2006, once home costs began to fall and mortgage defaults began to rise. The Fed and most analysts ignored it. They welcomed a slowdown in the overheated housing market.

In 2007, the high-risk mortgage crisis hit. Lenders had allowed too many people to take out high-risk mortgages. Once they defaulted, the banks called in their credit default swaps. That bankrupted insurance companies like American International Group. Around the summer, the banks had stopped lending.

In 2008, the Fed stepped in to keep Bear Stearns and AIG afloat. The US Treasury nationalized mortgage guarantors Fannie Mae and Freddie Mac to keep the real estate market afloat. However, they could not benefit the investment bank Lehman Brothers. Its bankruptcy caused a worldwide banking panic. Scared organizations withdrew a record $169 billion from their money market accounts. If money markets had collapsed, organizations would have lost the inflow of cash they need to operate. The Dow fell 777.68 points, its worst one-day drop.

The economy contracted -2.3% in the first quarter, -2.1% in the third quarter and -8.4% in the fourth quarter. It then contracted -4.4% in the first quarter of 2009 and -0.6% in the second quarter.

Congress approved a $700 billion bank rescue package to restore confidence and stave off a collapse. Obama's economic stimulus package pumped $787 billion into the economy.

• What are the warning signs of a crisis?

The updated economic history of the US suggested that the next crisis would occur between 2019 and 2021 and, by the way, there was a recession in 2020. That does not say where the next one will come from, what will be the result and how to defend yourself. yourself. What would have saved you in previous crises may be the worst thing you can do in the next.

• You should be aware of warning signs.

The first sign is usually an asset bubble. In 2008, it was the costs of the house. In 2001, it was the high-tech stock market costs. In 1929, it has been the stock market. In most cases, it's accompanied by the feeling that "everyone" stands to get richer beyond their wildest dreams by investing in this asset class.

The next tip is the get-rich-quick ads on each piece. You feel that they remain leaving you aside. And in other words true throughout any time prior to the mishap. Such is the nature of an asset bubble.

The third symptom happens once self-proclaimed professionals write books that predict prosperity beyond imagination. They comment that "this time is different". It's called quirky exuberance. It could last for months or even a year or 2. But never stiff for life.

In March 2019, the Federal Reserve warned of another economic crisis due to global warming. Extreme weather caused by global warming is forcing farms, utilities and other organizations to file for bankruptcy. As those loans sink, they will damage banks' balance sheets just as high-risk mortgages did throughout the financial crisis.

The Fed blamed the rise of fossil fuels on the lack of a carbon tax. Organizations and households are not charged accurately for the use of these fuels. The Fed calls this "a major market failure." He mentioned that the defeat could lead to a financial crisis.

➍ Should the recession continue?

Printing money = printing bank deposits held by the non-financial private sector (United States), not bank reserves printed by Central Banks.

The former represents the "real economy" printing of money, and the printers are found in commercial banks and governments, not central banks.

The pace of change (acceleration or slowdown) in the construction of money in the real economy matters more than the mere direction.

This would be because our system is based on the continual spread of credit and leverage, and so while the direction is mostly etched in rock (up, apart from rare global deleveraging episodes), the pace of change it's more important.

Sharp changes in direction in the Credit Impulse series have historically forecast an aggressive acceleration or deceleration in earnings per share of the S&P 500 YoY in some quarters.

Due to the giant fiscal hurdles and tepid refinancing activity in the private arena, we are now witnessing a contraction in credit construction that is even more instantaneous than the one we experienced throughout the Great Financial Crisis.
As a consequence, we shouldn't rule out an earnings downturn in late 2022 or early 2023 already; As a hint, analysts still expect revenue to grow nearly 10% this year and next.

Personally, under my idea, a recession implies 2 quarters followed by a negative increase in the real Gross Domestic Product.

The reality is that a proper recession hurts the union market: after all, customer spending in the US represents almost 70% of Gross Domestic Product and, as the union market holds up, customers could bear, what's more.

The union market is a coincidental indicator: once it materially weakens above a certain threshold, you're already in a recession.

With that in mind, let's take a look at one of the most forward-looking union market indicators out there: US initial jobless claims.

❺ Conclusions:

Currently inflation continues and they are trying to increase interest rates in order to control it, however, I do not think that the government or banks are prepared to control neither inflation nor interest rates. I still remember an old friend saying that governments and banks have learned from past mistakes and have a plan. Ironically this was never seen. It just happened again, history did not repeat itself, but there were new circumstances to directly generate an inflation that is considered one of the highest in the last two decades. With a rise of 9% compared to previous 1-2%. Increasing interest rates aggressively to try to recover, but the printing of "Dollars" continues and I directly believe that they are going to screw up the economy for not thinking well "How much do they really need to reduce inflation without affecting the economic sectors in a aggressive to the point that a recovery is impossible or even its own citizens. They are just increasing for the sake of increasing and will make the same mistake that I made in the previous examples. Personally, I believe that we will have a small boost in most indices and assets, but then we will continue to fall. I hope you liked the publication. I'm not very good at fundamental topics, but learning 😊.