hi welcome to the Money Tea.  Are you trying to
figure out whether we're in a recession a
depression or downturn while today we'll
get the bottom of that so let's start
with the basics what is the recession a
recession is defined as a period of
significant GDP decline during the
back-to-back quarters so there is this
organization called the National Bureau
of Economic Research which basically
determines when the recession begins and
ends
so the economists actually have to wait
long enough so that a period of the peak
and the trough can be established so what
is considered when determining a
recession so the economists actually
look at more than just GDP when
declaring an economic recession they
also look for significant decline in
economic activity spread across the
economy so some of the factors that they
look at our GDP real income employment
industrial production and wholesale
retail sales now let's look at the
latest data on some of these factors so
data released in late April showed
that GDP for the first quarter of 2020
shrank by 4.8% this is actually the
worst decline since the financial
crisis of 2007 as for the second quarter
which is April to June economists are
predicting even worse decline in GDP
they are foreseeing in a GDP to fall by
as much as 30 percent during the second
quarter of 2020 as for employment over
the past eight weeks 36.5 million Americans have filed for
unemployment as a result of the corona
virus crisis experts are now predicting
that we're likely to see unemployment to
rise by as much as 13 percent if not
higher to give a comparison during the
2007 to 2009 Great Recession
unemployment at its highest was at nine
point five percent consumer spending
tumbled 16.4 percent in
April this is actually the highest on
record a lot of businesses have closed
down the physical locations and even
companies are cutting back on production
because of a significant decline in
demand think of it even from your point
of view you're probably not going out to
restaurants or buying as much as you
used to in addition to that you're not
going to any concerts or sporting events
a lot of your travel plans have also
been cancelled all of this reduce
spending also contribute to this data so
when you look at all of these factors it
is safe to say that yes we are in a
recession but then the reason it hasn't
officially been called recession is
because experts are waiting for a bit
more time and more data another less
obvious reason it hasn't officially been
called a recession yet is because of the
psychological impact by this I mean that
when businesses hear recession they'll
probably stop a lot of the spending
plans they'll put a lot of major
projects on a hold and they'll also
probably implement a hiring freeze and
what about people like even with you
when you hear recession you're not going
to go out and spend as much more likely
to save and not be as free with your
spending as usual so all of this will
probably result in a self-fulfilling
prophecy so what do we know well the
u.s. is probably in a recession but so
is a lot of like major economies in
Europe and a lot of other countries as
well such as like Brazil the Canada,
Japan, South Korea, Mexico,
South Africa all of us are in this
together it's a global recession so what
makes this particular period how to
comprehend is that a lot of previous
recessions have actually been caused by
an issue in the financial market or in
oil prices or in monetary policy or some
other aspect of the economic sector even
the Great Depression of the 1920s and
the Great Recession of 2007 2009 were
caused by the financial sector but what
we're faced with now is a public health
crisis which has never been experienced
in history and as a result a lot of
experts or economists just don't
know what's going on
so how worried should you be decisions
are actually fairly common and between
1945 and 2009 there was a total of 11
recessions which lasted about 11 months
on average so everything is about timing
and it depends on how long this current
situation will last and if it goes on to
a very long time then we'll definitely
be in trouble but what a lot of
economists are saying is that a
depression is a possibility but it is
also unlikely this is because a
depression is a series of rolling
recessions what I mean by this is come
December 2021 if the unemployment rate
is 15 percent or higher the know
probably be in a depression by then
don't forget that the country has not
entered a depression since the Great
Depression of the 1920s that lasted for
about ten years so this is where the
risk of opening up the economy too soon
comes into play and by this I mean that
if everything is open before we are in
the clear then they'll probably be a
recognition in the virus cases and the
numbers will start going up again and
things will have to be shut at that
point and as a result a lot of the hard
work that we've done over the past two
months will all go to waste and this
economic recession that we're in will
just keep it keep on getting prolonged
and before we know it we'll end up in
the depression because the recession
will have gone on for such a long period
of time so what you need to know is that
yes you are certainly in a recession
right now and if the unemployment rate
keeps on like going higher and higher
and a lot of the data that we previously
looked at just like if I'm getting worse
and worse for a very long period of time
then yes we'll probably head into a
depression but whether it's a recession
or depression or downturn or whatever
other label we give this current situation
it will probably feel like a depression
because the unemployment rate is bound
to be high for a very long period so
what I will recommend is that you take
the time to sit down and understand a
lot of these government policies that
have been put in place get to know them
and understand how they can help you if
you've been impacted by the crisis also
this is a good time for you to clean up
a lot of your personal finances and
probably start by creating an emergency
fund if you don't have one also don't
forget that the severity of a recession
depends on consumer behavior if you're
reluctant to go out and spend
once the economy reopens this will
probably be trouble for the recovery so
don't be scared to spend when the
economy reopens that my friend is the
tea of the day
until next time Cheers as always please
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