Recently, the world economy has been exposed to numerous challenges that upset the established pre-2020 balance. Suppose certain negative economic aspects like high inflation continue to linger. In that case, a significant economic decline, namely the terrible recession, sets in.
What can jumpstart a national recession?
To understand contemporary US economic concerns, we must analyze recession through the magnifying glass. A large-scale financial depression can be triggered by a series of events, for instance, an unexpected economic shock, such as the cutting off the oil supplies (see the early 1970s!) A country’s amassing excessive debt can also lead to recession.
Then, asset bubbles can burst (for example, the housing bubble in the 2000s), and a prolonged period of inflation (the one we’re currently experiencing) can end up in a worldwide recession.
Sometimes, momentous technical changes can trigger an economic downturn. If you believe this is far-fetched, imagine what effects will automation and Artificial Intelligence bring to the economy!
There are many speculations about whether we’re in or heading toward a recession. Still, only the National Bureau of Economic Research (NBER) can determine that.
What are a recession’s essential characteristics?
Though a recession doesn’t eradicate a country’s economic activity entirely, it reduces it substantially. The growing inflation rate kicks the money’s purchasing power and consumer demand to the ground. Consequently, the GDP drops off dramatically (and stays negative during at least two consecutive quarters.)
At the same time, incomes fall, and items and services become increasingly expensive. In addition, the unemployment rate keeps swelling as massive layoffs hit the job market. (For example, the unemployment rate in 2010 was 9.6 percent due to the 2008 housing market crash.) Under such circumstances, investing smartly during a recession might seem daunting, but it’s not entirely impossible!
The earliest recession in US history
Generally, historians regard The Panic of 1797 as the first notable recession recorded in America. It was caused by the expansion of credit and money supply resulting in land speculation.
Wars of independence and embargos triggered recessions in the history of a young nation.
The US economy underwent its fair share of recessions in the 19th century. The young nation was only a toddler regarding its economic development and still on unfriendly terms with the British Empire. This uneasy relationship resulted in the Depression of 1807, lasting three years. The gist, in short, is that the US passed the so-called Embargo Act of 1807. In response, the British introduced severe trade restrictions, thus hitting numerous US-based shipping companies.
In several Federalist regions, such as New England, smuggling thrived, causing a state deficit. Shortly, securities and commodity prices and trade volumes dropped. Once the mutual embargo was lifted, the economic recovery commenced.
The next major recession kicked in shortly after the Unpopular War with Great Britain (again) between 1812 -1815 ended. During the war, inflation grew steadily, reaching all-time highs after the war. Secondly, banknotes decreased in their value. Economic hardships multiplied, leading to the Panic of 1819. We can already notice the financial effects a full-scale recession prompts, such as national foreclosures, high unemployment, the collapse of manufacturing and agriculture, and plummeting real estate prices.
Panic of 1873 and the Long Depression
The post-Civil War era experienced a speculative economic bubble ready to burst. Soon, the most prominent American bank, Jay Cooke and Company, failed. Mining interests were severely hurt by the depreciation of silver prices in 1873.
The US workforce raised its voice against wage cuts in several rallies, such as the Great Railroad Strike (1877.) NBER highlighted that this was the most severe economic contraction, as it lasted till 1879 (unofficially, till 1896.)
Recession in 1893-1897
The Panic of 1893 was caused by the failure of the Reading Railroad. Many foreign investors, primarily European banks, panicked and pulled out their money from the US economy. Subsequently, the American stock market failed, and banks collapsed, unable to continue their cash payments.
The full-blown recession of 1893 resulted in the loss of profit in every economic sector, while people’s willingness to invest shrank considerably. Things spiraled out of control shortly, leading to political unease and unemployment rates rising to 18 percent.
The Great Depression 1929-1938
The worst economic catastrophe in US history was caused by two interconnected recessions. The first stage lasted from August 1929 to March 1933, with 1932 experiencing a 13 percent economic decline. From May 1937 until June 1938, the economy underwent its second dip. Unemployment peaked at about 25 percent in 1933 and stayed in the double digits until the outbreak of WW II.
What caused this infamous chain of events? Firstly, the Federal Reserve began raising interest rates in early 1928 and continued to do so throughout the recession. Secondly, businesses and life savings were lost in the 1929 stock market crash. Thirdly, the Dust Bowl resulted in a ten-year drought in the Midwest, which destroyed farmers.
The New Deal ended the first recession and increased GDP by eleven percent. As soon as the drought ended, the second recession also concluded. The US government boosted expenditures for World War II.
The Oil Embargo recession between 1973-1975
From November 1973 to March 1975, the United States faced a 16-month recession. Analysts consider the OPEC oil embargo responsible for increasing oil prices. Yet, speaking frankly, President Richard Nixon’s policies also had a fair share in the recession. Nixon first implemented wage and price restrictions. Regulations raised wages too high, forcing companies to lay off their staff. In addition, the government maintained prices artificially high, limiting demand.
Secondly, Nixon removed America from the gold standard in reaction to a run on Fort Knox gold, which caused inflation. The price of gold surged while the value of the dollar plunged.
As a result, the unemployment rate peaked at nine percent two months after the recession’s end. Moreover, the 16-month period brought five quarters of negative GDP (the highest being 1975 Quarter one with 4.8 percent.)
The great housing market crash and the ensuing Global Recession of 2008
Officially, the Great Recession’s course started in December 2007 and ended in June 2009. Under such circumstances, this economic downturn is considered the most prolonged recession since the Great Depression of 1929. In 2007, the subprime mortgage crisis prompted a worldwide bank credit crisis. At first, banks lending money for the housing needs of high-risk clients with bad credit scores seemed lucrative. Thus, everyone could invest in real estate.
Soon, property prices skyrocketed, creating a housing bubble. Nonetheless, the artificially generated housing prospects couldn’t be maintained in the long run, as many defaulters couldn’t settle their monthly mortgage payments.
In 2008, GDP fell in three quarters, with the fourth quarter falling by 8.5 percent. In October 2009, the unemployment rate reached ten percent. The recession ended in the third quarter of 2009 when GDP began to rise due to the American Recovery and Reinvestment Act.
The Pandemic and the 2020 Recession
The 2020 recession was the most severe since the 1930s. The Federal Reserve cut its funds rate to almost zero percent in March 2020. Soon, congress gave out billions in help to get the US economy back on track.
After plummeting 5.1 percent in the first quarter, the economy dropped by 31.2 percent in the second quarter.
20.5 million jobs were lost by April 2020, raising the unemployment rate to 14.7 percent. The 2020 stock market crisis was also driven by uncertainty about the pandemic’s influence. The economy increased by 34 percent in the third quarter. However, it was insufficient to compensate for previous financial damages.
Final thoughts
Recession is no stranger to the US economy. Our country has been exposed to various financial challenges that have never succeeded in pulling us under. Wars, stock market crashes, pandemics, (international) real estate speculations, and oil embargos can come and go. Still, we somehow always find a solution to get us out of trouble.
Although we’re facing a seemingly unending inflation, analysts predict the inflationary rate will be adjusted to normal levels until the end of this year. So, not all hope is lost! In the meantime, remember that we can make money even during dire straits!
Puan Maharani - President Joko Widodo said, already speaking with the Chairman of the house of representatives Puan Maharani, so the discussion of the draft rules of the omnibus law to be completed in three months.
Such rules need to be discussed between the government and the house of representatives to be legalized as a law.
Jokowi wants the omnibus law can be quickly completed to anticipate global economic pressures.
Because, many countries entered into recession due to the global economic slowdown.
If the omnibus law won't be solved, Indonesia could be like the countries that are experiencing recession.
Meanwhile, he called the omnibus law on taxation will soon be submitted to PARLIAMENT this week.
