Recession: Definition and its Causes

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Historical events have something to teach us, and the individuals who have witnessed or experienced such catastrophes are the human teachings that we acquire from the survivors. One of these survivors is Tamata san, who must be about 110 years old. In this brutal era, she is a link to the past

Recession: Definition and its Causes​

  • A recession is declared when a country experiences negative GDP growth for two consecutive quarters, indicating that the economy is contracting rather than expanding.
  • Typically, a recession lasts at least six months, but no maximum length has been established.
  • Can we detect whether we are stepping into a recession that could become a more significant depression?

Indicator of Recession​

  • Several statistical tests and proprietary models used by forecasters and analysts can be considered recession indicators because they are regularly reported or calculated and help us in recession planning
  • Yield curve
  • GDP
  • The Stock Exchange
  • Unemployment
  • All of these indicators tell us whether we are in or heading toward a recession

Great Depression​

  • The Great Depression lasted from 1929 to 1939 and was one of the most severe economic crashes in history
  • It began as a recession in America in 1929 before spreading globally, most notably in Europe
  • With any long-term economic crisis, the Great Depression was precipitated by a series of events, including the 1929 stock market crash and the severe drought of the Dust Bowl
  • People were facing hard times, it was something that no one had ever witnessed earlier, and the new effects of the Recession. People were frustrated and had the most challenging time of their lives

Depression: Definition and Its Causes​

  • A decline in GDP up to 10 %
  • It is more severe than a recession
  • Some believe a depression ends when an economy begins to grow again, while others believe it ends when growth and output return to pre-crisis levels

The 1929 Stock Market Meltdown​

  • The stock market speculation in the United States contributed to the great economic downturn.
  • As stock prices reached new highs, investing in the stock market became a straightforward way to make money, and people of all income levels used a large portion of their savings to purchase stock shares.

Trade policy​

  • During the 1920s, the United States imposed high taxes on imported products, making it difficult for other countries to sell their commodities in the American market.
  • As a result, foreign commerce fell, contributing to the worldwide economic collapse in 1929- hence the phrase "Worldwide Economic Collapse."

Recession and Depression​

  • Recessions are confined to a particular individual country's economy
  • GDP dropped by 4.3% during the Great Recession
  • Unemployment rate rose to 10.6%.
  • In the Great Depression, unemployment peaked at 24.9%
  • The only Depression we faced lasted for a decade, from 1929 to 1939
  • Currently, we see the horizon of something devastating and brutal regarding economic stability

What are the opportunities for investors?​

  • Higher interest rates at the start of a recession may allow you to earn more on savings deposits
  • Lower rates as the Recession ends may provide opportunities to secure a favorable mortgage loan
  • You may be able to purchase assets at a reduced cost after their value has depreciated
 
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