The Upcoming Economic Crisis

The Upcoming Economic Crisis

COVID-19

I trust you're safe and happy at your home. I know what you might be thinking 'Another COVID-19' post. Right? I know you're fed up with these disappointing talks of CoronaVirus Outbreak. Like you, I, too, am fed up with these talks. This seems to have no end and even the World Health Organization (WHO) has proclaimed recently that COVID-19 may never have an end just like HIV. Just look at this video.


This is surely a piece of shocking news in the disputes where Italy and Israel once came forward saying that they have developed a vaccine or antibody of SARS COV-2.  I know that this is an international matter and anything like a vaccine of a pandemic is a big thing and needs approval. Therefore, I don't consider this piece of news to be wrong but I also don't approve any of these. I have shared the screenshots with you and you can click on them to view the full article.  
  
This Corona Virus not only affects an individual biologically but also affects an individual economically. We all know about the condition of migrant labourers today. This is what is called an economic problem.  
This brings me to a very important topic. Many people consider economic slowdown, recession and depression the same. This line gives us the starting of our today's post titled 'The Upcoming Economic Crisis'. Let's start.

Difference between Economic slowdown, recession and depression

The economic slowdown-  It happens when the GDP growth rate is low, it is not negative- it stays in the positive, but it is lesser in comparison to the previous years. For example, we have been seeing an economic slowdown in India in the past few years but economic slowdown does not mean recession.

Recession- Most of the economists describe a recession as when the GDP growth rate of a country goes into the negatives for two quarters or more and depression is a worse condition than recession.

Depression is basically recession over a long period It is defined as a minus 10 or even lower GDP growth rate of a country for three years or more

The Global Financial crisis of 2008 is referred to as the Great Recession. Depression is such a terrible condition that over the past 150 years, the world economy has faced depression only once -The Great Depression of 1929. You must have read about it in the history books- The great depression went on for more than 10 years, the GDP growth rate of the world economy had almost touched minus 15 %. The unemployment rate in most of the countries was 25-30%. Such a bad economic state worldwide has never happened since then.

Upcoming Crisis

 After we know, what is the difference between economic slowdown, recession and depression, the question arises what is the situation now? This is just an economic slowdown. Where most of the people can work from home. So, we can come to the conclusion that IT sector is safe and can be handled at home. In fact, the company 'Twitter' has said that the employees can work from home for their whole lifetime. Click on the screenshot to view the full article.




But some sectors are going to be affected very much. Like- Restaurants, Automobile Industry, Travel and tourism and many more. But let's start from the beginning.

In 2008, we saw how the financial uncertainty spreading from the downturn in real estate—by way of subprime to funding markets and from there to the balance sheets of major banks—could threaten an economic heart attack. It was this massive financial shock, piled on top of the losses to households from a downturn in the real estate sector, that caused economic activity to contract. In the worst of times, over the winter of 2008-2009, more than 750,000 job losses were recorded every month—a total of 8.7 million throughout the recession. Major industrial companies like GM and Chrysler stumbled toward bankruptcy. For the global economy, it unleashed the largest contraction in international trade ever seen. Thanks to the massive intervention of both monetary and fiscal policy, it did not become a deep and prolonged recession. After a contraction of 4.2 per cent in the gross domestic product, a recovery began in the second half of 2009. Unemployment peaked at 10 per cent in October 2009.

It is too early to confidently predict the course of the economic downturn facing us due to the coronavirus. But a recession is inevitable. The global manufacturing industry was already shaky in 2019. Now we are deliberately shutting down the world’s major economies for at least several months. Factories are closing, shops, gyms, bars, schools, colleges, and restaurants shuttering. Early indicators suggest job losses in the United States could top 1 million per month between now and June. That would be a sharper downturn than in 2008-2009. For sectors like the airline industry, the impact will be far worse. In the oil industry, the prospect of market contraction has unleashed a ruthless price war among OPEC, Russia, and shale producers. This will stress the heavily indebted energy sector. If price wars spread, we could face a ruinous cycle of debt-deflation that will jeopardize the world’s huge pile of corporate debt, which is twice as large as it was in 2008. International trade will sharply contract.
 

But as in 2008, before we can tackle the recession, there is another threat to deal with: the risk of a financial heart attack. A recession is different from a panic. And a financial panic is what we began facing the week of March 8. It is that threat that continues to haunt the markets.

The immediate trigger was the breakdown of oil talks and Saudi Arabia’s announcement of a price war. On top of the worsening coronavirus news from Italy, this shocked markets and induced a contraction in lending and a flight to safety. The demand for cash was insatiable. The reality began to sink in that what started as an external biological shock to the economy might be mutating into an internal collapse in confidence and credit.

A sudden credit crunch exposes those that have too much debt and weak business models and have taken an excessive risk. Their distress spreads to the rest by way of business closures, job losses, and fire sales of otherwise good assets. Matters are made even worse if the economic victims have financed their activities with borrowing, such that their losses eventually strike the balance sheets of creditors that were unwise enough to lend to them. Fear of these repercussions contracts credit across the board.

In 2008, the banks were at the centre of the storm. Given the consolidation of their balance sheets, it is less likely that America’s big banks will run into difficulty this time. But Europe’s banks never truly recovered from the double shock of 2008 and the eurozone crisis. Italy’s public finances are in precarious balance. On Wall Street, fund managers of all kinds have been booking large losses and are facing huge demand for cash. A hard-pressed oil-producing country might be forced to offload assets from a sovereign wealth fund, thereby depressing prices for otherwise good assets and unleashing a chain reaction.

The most disconcerting sign has been the fact that as stock markets plunged, U.S. sovereign debt fell in price, too. That should not happen. Treasuries should function as safe havens. If their prices fall, it means that enough investors are desperate enough for cash to move even the biggest market.

Courtesy: ForeignPolicy


This economic crisis is one of those or even the first one which is disputed. The results are not clear. At the times of The Great Recession 2008 and even during The Great Depression, the reason was at most something related to economics and not with diseases. The economists made predictions about the future and many of them were proved to be right.  But this time, some say, the upcoming situation will be the worst in 100 years after The Great Depression. While some say that when the lockdown opens, the situation would be easily handled. Because it is not related to the economy or any loss of any country in any of the things. Well, these are only predictions and no one knows the future. 

The precursor to all this situation dates back to December 2019 and we all know the origin for this, Wuhan. I am not spreading any hatred against China but no one can deny the fact that some irresponsibilities lead to this situation. Whether these were done by the USA, Russia, Italy, Spain, China or even India. No one knew that this 11 lettered word would play such a significant role in our lives or even this can take so many innocent lives with it. Well, I offer my sympathy to all of them who are suffering or has suffered and I hope the world also does.

Well, let's hope for the best and support the situation. The only way we see now to break the chain. Please don't go outside. Show your support by being inside your homes. Sorry 'Sweet Homes'.  

Proclamation for The Blog

I have decided that I would be posting one good news about the pandemic every time I post an Informative post. This is to spread positivity amongst everyone so that a positive man can fight this pandemic positively. Today, let's start with something connected to the Economy. 


Carbon Emissions and Economics


As you can see in the above picture, it clears that Carbon Emissions are directly proportional to economic growth. Carbon emissions have always raised exponentially but sometimes, as you can see in the picture, there are dents in the carbon emissions at the times there was an economical impact. In this economic crisis, there is gonna be a huge dent as everyone is in their homes. No industry, no factories, no plants, no vehicles and therefore, no pollution. Even, there is some news that claims the Antarctic Ozone hole is getting filled up. This is some sort of good news for the environment and we are heading in the right direction. 

Also, click here if you fear that you're a CoronaVirus Patient. You will be straightly headed towards the helpline numbers given by the government.

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