Experts predict a procession of recessions in the months ahead. The United States, the United Kingdom, Japan, South Korea, Australia, Canada, and the Eurozone (the eurozone is a group of 19 countries accepting the euro as their primary currency) are all facing a recession. We are not talking about probabilities anymore, we are talking about how bad this recession could be and if it is worse than 2008. Kristalina Georgieva, chief of the International Monetary Fund, said the cost-of-living crisis is only getting worse and warned of an imminent recession.
Three main causes of a recession:
- Overheated economy
- Asset bubbles
- Black swan events
These three factors can cause a recession and all three of them are at play right now
Overheated economy is when there’s an imbalance between demand and supply and that’s exactly what is happening right now. A global food shortage has been triggered by the Ukraine war, and global oil demand is projected to reach new highs as a result of the high demand and limited supply.
All of these recent events in the global arena are telling us the exact same thing: the demand for goods is high, the supply is short, and the price is rising. Global supply chain crisis fuels local manufacturing in 2023 labor unrest disrupts supply chains from coast to coast.
In other words, inflation, the crisis is here and 44 countries have advanced economies, while in 37 countries inflation rates have doubled. A high inflation rate is a sign of an overheating economy, so central banks have been raising interest rates to tame inflation; if these measures are successful, it may take some time for them to take hold.
An asset bubble occurs when the price of a commodity or asset, for example, publicly traded stocks, bonds, or real estate increases tremendously without underlying fundamentals. Prices usually rise and fall and reach equilibrium, and prices refer to the fundamentals of demand and supply. In a bubble the prices overshoot without reaching equilibrium; this is due to the infinite supply of money and credit pumping into the market, which will help buyers to bid continuously higher, thereby increasing the prices.
Something was overpriced earlier for whatever reasons it was a bubble and suddenly the prices fall the bubble bursts this price correction can cause a recession and it’s happening as we speak. During the pandemic stock prices of several companies soared markets were on a high which created a bubble and that bubble burst. Look at the recent mass sell-off in markets and investors have lost 11 trillion dollars by the month of May this year, this is the worst losing streak for global stocks since 2008. That was the last global financial crisis in 2008. Markets worldwide are not showing any recovery and will remain the same because more bubbles could burst; one of them is the debt bubble. Global debt has reached a staggering 305 trillion dollars.
Globally, households, private companies, and governments owe 305 trillion dollars in debt. To put that number into perspective, global debt was just 83 trillion dollars in 2000. Almost four times more will be spent in 2022. Global debt now exceeds 355 percent of GDP, which is unsustainable. There is a possibility that some of the debt will fail, and if that happens, it could slow the economy down.
Black swan events basically rare unpredictable events that impact the whole world like the Wuhan virus pandemic and Russia’s war on Ukraine. The pandemic derailed the global economy, the war in Ukraine has dealt a body blow due to supply shortages and inflation, and these events accelerate the collapse of economies. Ukraine is fighting a war, but its impact is being felt around the world, and it will get worse before it gets better. There are labor strikes in many countries demanding better wages, crippling businesses, and global supply chains. In addition to affecting a country’s economy, recessions cause social unrest, and the way things are going, any government and angry population should prepare to deal with the consequences.
Since centralized money is programmed to fail, it is better to acquire hard assets like bitcoin rather than fiat currencies against losses in portfolios.