To better understand the current global situation, we can use a metaphor. Have ever heard of the metaphor " Like the boiling frog"? When a frog is placed in a pot and slowly boiled, it will continue to remain in the pot even if the temperatures rises. The frog tries to adapt to the changes in the pot's temperature each time the temperature is increased. The frog at each moment tries to adapt to the changes without realising that it is getting cooked; instead of jumping out and escaping. It tries to adapt to the changes by using all its energy. And when the damage in its body becomes high, the frog becomes weak and looses it ability to jump out, therefore it dies.
Similar to the frog, we humans have something similar. It is called the normalcy bias. It is cognitive bias where we humans believe that the threat is low and everything will be continue to remain normal for the foreseeable future.
Currently, the world is entering its most turbulent phase and we are facing an uncertain future. With the number of crisis that we are facing becoming uncountable, day by day, we are left with no option but to be prepared and be cautious of what comes next. Therefore, in this article, I will explain why a recession may officially start within weeks or months from today.
What is a Recession? (For new readers)
A recession is a period of economic contraction where the economy shrinks in size. It is usually measured by looking at the Gross Domestic Product (GDP) and other macroeconomic indicators. The decrease in the economy can happen for a variety of reasons, such as a sudden drop in spending, or an increase in the cost of goods. When this happens, it can take a while for things to get back to normal. The severity of recessions has varied over time, but they have historically always been correlated with high unemployment.
What Causes Recessions and Why Do They Happen? (Brief Explanation)
Most common cause of recessions is a drop in aggregate demand, which leads to higher unemployment rates and lower income levels. Drop in aggregate demand can be caused by various factors like high interest rates, high oil prices, or a global economic crisis. The Great Recession was caused by the banking crisis. Recently, the pandemic cause a sudden decline in consumer spending, causing a minor recession during the lockdowns.
The Current Situation
Death of the Dollar
The United States Dollar, for far too long, was misused as a political tool and a weapon for short-term gains in United States Foreign policy. Since 1973, when US President Nixon disconnected the US Dollar from Gold and changed the status of the US Dollar from actual money to paper currency, the value of of the Dollar has been in decline ever since. This is the current US debt. (https://www.usadebtclock.com/)
The decline in the value of the Dollar can also be attributed to the reckless spending and uncontrollable printing. Due to this, in 1979, a deal was signed between the US-Saudi Government to sell all the Saudi oil in the United States Dollar in exchange for military protection and Technological transfer (oil related). Since all countries that needed to buy oil needed the Dollar, this deal between the governments made an artificial demand for the US Dollar thereby making it the Global Reserve Currency.
Due to climate change, major world economies are focusing on sustainable energy. Therefore, within 2 years, there will be lesser demand for oil; and indirectly the Dollar.
Moreover, the petro-dollar is now being challenged by Chinese-Yuan, Indian Rupee and the Russian Ruble. India has recently developed ethanol mixing technology to reduce the purchase of foreign oil; and India-Russia trade is being established using Ruble-Rupee transactions. This type of trade mechanism will eliminate the need for US Dollar as an intermediary.
Furthermore, the central banks around the world are developing and implementing CBDC (including the US Government) in their respective countries. Therefore, the US Dollar, in its current form, will be redundant soon. During this, the chances of replacing the Dollar as the World's reserve currency will be high.
Low Population Rate
The declining population is also a factor. When there are older people than the younger people, the government carries the burden of pension, health care and other services that was once promised to them. As the population decreases and unemployment increases, the economic stress on the Government increases. This will ultimately lead to the contraction of the money supply due to lesser taxation and lesser spending. Jobs will also be affected, and therefore the whole economy. We are at the beginning of this crisis. Most developed countries are facing a decreasing population. This is not a cause for an imminent recession, but rather a long-term obstacle in recovery from a recession.
Financially, one can speculate that this may also be the reason immigration to developed countries are high; especially due to the high demand for tax slaves to support the local population and the economy.
The Work Burnout / The Great Resignation
Working 24 hours a day / 7 days a week is becoming a nightmare for most of the young generation. The traditional way of getting higher education, acquiring a well-paid job, getting married, settling down in life, starting a family, and other societal norms are slowly becoming outdated. This redundancy factor, intellectually, is making the young generation understand that their hard work, money and innovations are being used by a certain part of the society (mainly the corporate-class people, political-class, and those people preferred by the governments) and they themselves don't receive any reward for their work at all. Excessive taxation by governments, providing preferences to people irrespective of their qualifications, unequal level justice, etc; are some examples of the abnormalities becoming common. Financially, this tendency can also be attributed to general inflation, increased costs, lack of job security, lack of promotions and decreased salaries.
People are therefore turning to professions that better suit their dream lifestyle and needs. Majority of these include startups, freelancing, YouTubing, blogging, vlogging, and other internet based personal brand building ways of life. From an economical point of view, these professions are considered unproductive as they do not generate any physical product (mostly).
Another example of an extreme work burnout can be seen in China, where young people have begun a trend called " BAI-LAN " or " let it rot"; where youngsters quit normal jobs and do part time works just to pay for essentials (like food, rent, etc). They have no ambitions in life and do not want to be a part of the society. Most of them live a frugal life without any entertainment. Some people work only for 3 months a year and then "rest" for 9 months. For the Chinese government, this trend has become an economical disaster as it increases the unemployment rate and decreases the tax collection; considering China is already facing issues due to the one-child-policy, this trend can have devastating consequences in the long term.
Service-Based Economies
The current advanced economies have all transitioned from the traditional agricultural economy to manufacturing economies and then to service-based economies in the past 100 years. This transition may be attributed to the increased wages which resulted in increased living standard; therefore, shipping the agricultural and manufacturing processes abroad for cost reduction and profit maximization.
From a business standpoint, this move has drastically helped a lot of local western businesses to generate a profit and expand its supplies; thereby creating the global supply chain, where goods are sourced, manufactured, and sold in different parts of the world. Some of today's major corporate companies were made global using this business practice.
When the rate of increase of inflation is lesser than the rate of increase in wages, the actual purchasing power of the people increase; therefore, from an economic standpoint, this move by the business has also helped the country lift people out of poverty in western countries much quicker.
But from a strategic-financial standpoint, service-based economies have a higher chance of recession than manufacturing and agrarian based economies. The service-based economies produce nothing by themselves therefore rather depend on other countries for their necessary needs. Also, the service-based economies are totally based on continuous revenue. When the revenue shrinks, the service-based economy shrinks instantaneously. Countries that depend on tourism, financial services, education, etc. Most of the currently developed economies are serviced based economies, therefore the risk of a long-term recession is high.
War and Pandemic
The economic side effects of the pandemic and the current war in Europe are affecting people around in this economically interconnect world. These effects will still continue to increase and will reach a threshold; when it reaches this threshold, it will lead to a disconnected financial system where different financial standards will be set up in different locations based on international boundary. Economic sanctions may be considered as a beginning of this long-term phenomenon; during this process, people will experience economic pain like inflation, shortages, lack of materials, increases cost of manufacturing,etc. Considering lockdowns along with this, it can be detrimental for the foundation of the Global Economy; i.e. the middle-class people.
Banks
The Global Financial crisis of the 2008 was unprecedented and unprepared-for in many ways. Even after that, the most banks are still providing loan without eligibility checks, producing toxic financial products that have no real value, encouraging people to take debt via credit cards, investing in businesses that have no prospects, etc. And as always at the end still being unprepared for the next crisis. This type of unregulated behaviour led the world to the 2008, 2000, 1987, 1929 financial crises. As a result, youngster are taking huge debt to gamble in the stock market for quick and easy money. This not only over-leverages the stock markets but also causes an increase in the money supply; thereby causing inflation for fixed salary hardworking individuals.
Pathway to Pain
A recession has many effects on an individual's income and wealth:
The first effect of a recession is that it will cause wages to decline while prices increase.
The second effect of a recession is that it will cause some people to lose their jobs. As the income decreases, the spending also decreases. This phenomenon is also true for businesses, therefore they cut costs by laying-off their staff.
The third effect of a recession is that it will cause people's savings and investments to lose their value, which can create even more economic pain. As people become jobless, they rely on their savings for their day-to-day needs. To help the businesses, the governments devalue their currency by printing more of it; like they did in 2020.
The fourth effect of a recession is that it will cause companies and people to cut back spending even more on things like travel, food and entertainment, which can also create economic pain for related business.
How to Prepare for a Recession and Survive One if It Happens to You?
It is not a secret that recessions will happen. It is also not a secret that they are not good for the economy. However, it is possible to prepare for them and survive them.
There are three things that you should do in order to prepare for a recession:
Prepare your finances - in case you lose your job or have other financial troubles;
Prepare your home - make sure that you will live with what you have at home and don't spend all of your money;
Prepare your work skills- update your resume and think about how to improve yourself so that when the recession ends, you will still be able to find a job.
How Can We Prevent Another Recession?
The question of preventing another recession does not matter as we are headed towards a "GREAT RESET" where our entire society will change. This change includes all the aspects of our lives, including finance. Right now, like I mentioned in my previous articles, countries have already begun the uses of CBDC/Digital-Currencies; these new monetary systems need only less maintenance as it is all done digitally using computer algorithms. Professions like Accountants will be replaced in the coming years using computer programs. Therefore, expecting a strange future, it is highly unprofessional to look for ways to avoid event that may not even happen; only time can tell.
I believe we have not yet realised that we are already in a recession. This silent and slow recession has been happening since the pandemic; since the beginning of 2020. This recession is unavoidable, but the intensity can be reduced for those who are prepared. To think that our government will do something to mitigate the coming crisis is futile, which is clear from history. Governments, multinational-corporations are all preparing for the upcoming crisis; therefore, it is wise for us as individuals to prepare for it.
Since this is a transition phase in the world, many jobs will become non-existent in the coming months/years. The rate at which the companies are laying off employees is unlike anything seen before. This recession may be a blessing for a few and a curse for many. As always, recession is the best time for generational wealth creations; therefore, people that are financially well positioned will take advantage of this situation.
Previously, companies considered employees as paperweights, they needed it for a few time but not always; after the use, it was kept aside. Today, as companies are becoming more and more paperless, paperweights are being thrown out of windows like useless garbage. With the world becoming less and less moral, loyalty can only be expected from dogs these days. Therefore, make sure that your employment is not like a paperweight. If it is, better to find a job where you are considered important. If no options are available, try considering self-employment. But never ever consider any leniency from your company during a crisis; because for them you are just a number on the accounting balance-sheet (cost); which needs to be reduced in order for others in the company to survive.
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NOTE: This article does not intend to malign or disrespect any person on gender, orientation, color, profession, or nationality. This article does not intend to cause fear or anxiety to its readers. Any personal resemblances are purely coincidental. All the information presented are supported by sources that you can find and verify. All pictures and GIFs shown are for illustration purpose only.
Sources:
Worst yet to come for the global economy, warns IMF - The Hindu BusinessLine
Ukraine war has affected Asian economy; risk of fragmentation worrisome: IMF
IMF warns ‘worst is yet to come’ for world economy | Deccan Herald
world bank: World dangerously close to recession, warns World Bank President - The Economic Times
India’s economy faces significant external headwinds: IMF | Deccan Herald
UK recession: Goldman Sachs sees deeper UK recession after tax U-turn - The Economic Times
Five signs why global economy is headed for recession - Business & Economy News
Sperm count falling sharply in developed world, researchers say | Reuters
Global decline in semen quality: ignoring the developing world introduces selection bias - PMC
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