Global Economic Recession

Economics is described as the study of the production, movement, and consumption of good and services. A recession is the result of the gross domestic product (GDP) dropping for two consecutive quarters. Fortunately, because of the diversity of each country there are multiple ways to end up with a recession. The United States specifically has been in five different recessions 1975, 1982, 1991 and the most considerable one in 2008; that is until recently because of the COVID-19 outbreak which has now taken the top spot for worst global recession. There is a plethora of reasons for recession, but the key takeaway should be the global economic drought that follows after it infiltrates one country. A global economic recession (GER) is the proper name and, it occurs when all the world markets have a “drop off”. Usually in the form of sales, trades and GDP but can be measured in other ways as well.

1. The United States’ internal struggle.

Before a recession is in full swing there are major events that need to occur first. These categories are all internal but have small external pieces. For example, the banks lending to much credit out is an internal problem; the external piece is added because they also lend credit overseas. The United States recession problem begins and ends with credit. Credit is a monetary value lent from the bank to an individual or firm. This loan depending on the person or entity will have a higher or lower percentage of interest. This allows the person to immediately acquire funds and make purchases as long as he agrees to make continual payments until the bank has the money fully returned with a little over the top. However, when that person is not able to pay back their debt to the bank, they lose liquidity and ability to function correctly which, are usually solved by government bailouts like the Obama administrations stimulus plan for the 2008 crash.

2.Bailouts

The only way a government can add liquidity back into a bank is shoving money back in it. The way the United States does this is with government stimulus plans. They seemed to have worked in the past and are used present day to boost the economy. However, the new stimulus plan costs an overall two trillion dollars, and even considering the lower (delayed) taxes and interest on the general population it doesn’t seem to have leveled out the economy yet. The second way that governments pump money through the system is creation of it. The central bank can print out as much money as need be to pay off or buy out certain banks. They also can choose to buy stock of that company to further pull them out of the hole. Unfortunately, every business cannot be saved and sometimes they still go bankrupt like Lehman Brothers during the 2008 crisis. The direct effect though, from this procedure is inflation.

3.Inflation

Inflation can be described as less buying power or an increased market price for general items for the public. When the government prints more money the value of the dollar decreases. This not only effects the general public of that country, but also overseas trade for example, instead of getting one billion USD for 30 billion JPY it would now take many more dollars to acquire that amount of yen. Inwardly the country is now paying its population less and charging them more while simultaneously inquiring them to work more. Since the value of the dollar has decreased now businesses are seemingly being charged an increased amount for import and export goods. This extra monetary pressure, and not being able to ask the banks for more loans backs firms into a corner; forcing them to fire hundreds to thousands of employees.

`4. Unemployment

Now since the recession has finally hit the unemployment phase millions of people will be laid off because of it. This shrinks the economy even more as people with no money don’t tend to spend any either. This means the only group giving money to the economy is the federal government. The general population is still going to need housing; otherwise, the real estate market will fall as well so, the government will need to supply people with stimulus checks (welfare). Although, since the market would still be in decline households wouldn’t be spending money further continuing the cycle.

Overall, this cycle could happen to any country even the small upcoming ones. This vicious cycle also transfers to other countries like a contagious disease specifically from the US to Europe. This country and continent have direct relations with each other so much so that 10-15% of their trades are just between one another. This works well when the economy is thriving, but within a recession if one country is failing drastically so is the other. Since the United States is such a volatile market when business’ fail or have to be bought out it stagnates firms in Europe. This stagnation and decline in Europe will cause Americans to lose faith in an already suffering EU market. This then transfers into other markets as Europe has ties to Asia and the Middle East (which also contain American assets). This will slow trade as globally all markets begin to slow while the market titans decline steadily.

Unfortunately, both countries are to invested in each other to completely pull out on one another. The US’ consumers won’t put money in the EU because the market is so weak hurting the EU market even more but disrupting the US market as well. The EU will follow suit not taking out any stock placed in the US, but not providing any new funds either successfully injuring both economies again. The back and forth will continue until one country is able to pull itself up and then flood the others economy with commerce. Effectively reestablishing the global market although it still won’t be normal and need time to recover.

-Kacee Ittabe