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What are the Causes and Effects of a Recession

2008-07-16

 

Recession house of cards

 

This recession has been a particularly bad one. One of the biggest problems of this recession is people who can't afford their house any longer and are unable to sell it for even whats owed on the mortgage. Banks often times say they don't mind short selling the home for you, meaning they'll take whatever your home will sell for and forgive the extra debt, but this is often not the case. Banks will only allow you to short sell if you have little to no other assets they can take. Their in business to save and make as much money as possible. Don't get confused with real estate short sales and stock market short sales though. Stock market short sales are a completely different problem we're having.

So what causes recessions?

Recessions are caused by speculation, currency crises, inflation, national debt, and war. We currently have problems in everyone of these areas at the moment. The FCC just a few days ago began their initiative to stop the naked short selling of stocks, which is a big problem at the moment. Right now the price of oil on the Dated Brent Spot is being manipulated through ICE and their buying and selling of oil futures. The dollar index rose a few basis points just from the news of cracking down on these crooks alone. Although we are working on some of the problems of this recession, other problems like the war, the national debt, inflation, and the currency crisis have not been addressed.

What are the effects of a Recession?

 The effects of a recession can be quite painful. Recessions cause unemployement, foreclosures, bankruptcies, stock market crashes, reduced sales, and banks tend to lend less money. When banks lend less money though it actually helps because it causes deflation. Deflation happens when theirs a contraction of the money supply. When the money supply contracts it's usually caused by high interest rates. Deflation can also be caused by increased production efficieny, which allows the company to lower its prices. Deflation causes prices to go down, and causes the dollar to be more valuable.

How can I know If Im prepared for this recession and the next one?

Recessions are hard on everybody, including the rich. This is because their companies are usually in more debt than their business is worth. Debt can hurt anyone in a recession. The best way to survive a recession is to simply be debt free and put away money for a rainy day. Not only should the average person prepare in this way, but big businesses should too.

Do you know if your financially fit enough for the next coming recession? You can take the BillsIQ quiz to find out. I took it. It really helped me think about my current financial situation and what I can do to improve it. My suggestion would be that you get your Bills IQ score over 95 if you plan on surviving the next recession without a problem. You also should share this quiz with people that you care about whom may not realize their financial mistakes.

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