What is an Economic Recession?

Friday, May 11, 2012
Nobody wants to face a recession. It is because people fear of losing their jobs, stock market crashes, people go bankruptcy and so much more can happen. However, this is something nobody can avoid it and must learn how to face it. So what actually is considering as an economic recession?

In most country, it is normally defined as a technical recession when there are 2 consecutive of negative growth in terms of their GDP. Such situation will causes a lot of panic as the entire economy slows down. There are always sign of such event before it even gets started. Consumers spending will drops, employment rate in the country decline and industrial manufacturing production drop and there will be more volatility in the stock market.

Historically, an economic recession will normally last for a period of about 1 to 2 years as cited by a lot of expert.

Why Can't the Government Stop Recession?

Recession period causes a lot of stress to the people and most people will the finger to the government. However, it is important to know that recession is deflationary in nature and if the government tries to rescue the economy, they would have to pump in a lot of money to improve liquidity. Such move will cause an after effect of increase inflation which will possibly lead to stagflation. That is why most government is always very cautious in this move whether to increase liquidity to the economy and reduce increase rate.

How Economic Recession Normally Get Started?

It is a fact that the rich will always get riches while the poor gets poorer. When the rich sees an opportunity, they will know how to speculate the market as though it is a great way to make money. After a while, the rest of the population will follows and started to make some quick money. The combination effect of all the poor and middle income people make the entire market so huge and nobody will ever think of supply and demand. Economic bubbles will soon explode and it will be fierce and fast. However, the rich would be smart enough to exit way before such bubbles occur. So it is the majority of the population who will suffer and the governments are force to step in to clean up the mess.

Phases Of An Economic Recession

There are always few phases an economic recession has to go through, that is the period of slowdown, recession, recovery and than expansion again. Usually the period of recovery and expansion will last much longer than the period of slowdown and recession. Most people like to chase after money during the period of expansion, when the market is very hot and this is a sure loose strategy. Most people will never learn that they should position their investing during recession period where everything is at their cheapest.

How to Rescue a Recession

Lowering interest rates is the most common measures the government will take to help stimulate the economy. As mention earlier, the government will be very cautious in such move as this will cause inflation which will further dampen the spending from the consumer. It will normally implement over a period of times when situation forces them to do so. There are however times when the bubbles are so big that such recession lasted for a prolong period of times like the one happens on thirties. This will make the whole economies to go into depression which is the worst things that can happen.

Conclusion

So, please bear in mind that making money from the stock market is very possible but do not just chase after the market. You need to study the situation very carefully and the strategy of buying low selling high will always work. You need to have a long term vision and do not speculate. If you know the cycle of accumulating your cash during good times, start buying in during recession, hold and sell at good times and accumulating cash again ...etc You will soon be the next wealthy man like those gurus. Remember, we will only face such cycles a few times over our lifetime and you must take opportunities of it.