Recession and today;

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Why does it happen?
- Economic growth falling below the rate of population growth — Per capita national income becoming stagnant and declining — Increasing unemployment — Economic activity stagnation and recession — Decrease in production activities
Such outcomes are the primary causes of a country’s recession.

Other definitions of the subject that should be known include:

  • Inflation: a continuous increase in the general level of prices
  • Stagflation: the economy does not grow when there is inflation.
  • Recession: a contraction in the economy for at least two consecutive quarters.
  • Depression: a prolonged downward trend in economic activity.

A recession is defined as a two-quarter contraction in the economy.
We’ve now heard it everywhere. Because I am a little curious, we see that the recession is being spoken about not for us, but for the countries that sit at the center of the world’s modern economy, in short, for the “west.”

Recession in its broadest sense. A significant and widespread decline in economic activity, which can last for months or even years, means higher unemployment, lower retail sales, and lower industrial output.

Experts use a popular definition of the country’s GDP falling for two consecutive quarters because a recession typically lasts six months or longer. Julius Shiskin, an economist, coined this definition in 1974. Shiskin argued that the contraction seen in two consecutive quarters shows that there are serious problems underlying it, despite the fact that a healthy economy will continue to grow continuously. This statement was later widely accepted.

It is believed that the imbalances that arose during the growth period preceding the recession, which is regarded as a normal part of the economic cycle, have been corrected, paving the way for the start of a new growth cycle.
Although stagnation is a common occurrence in developed economies, it has become less frequent and shorter in recent years. According to the International Monetary Fund (IMF), 122 recessions occurred in 21 advanced economies between 1960 and 2007, accounting for approximately 10% of the total time.

What are the underlying causes of the recession?
A recession can be caused by more than one factor. These can range from a sudden economic shock to out-of-control inflation, but any one of them, or a combination of them, can cause the economy to contract.

Sudden economic shock: the term “economic shock” refers to unexpected events that result in financial loss. One of the most recent examples of a sudden economic shock is the covid-19 epidemic, which caused the closure of many economies around the world.

Over-borrowing: when individuals and businesses become over-indebted, they may find themselves with no money to spend during the payback period. An increase in the number of companies that default and go bankrupt can have a negative impact on the economy as a whole.

Asset bubbles burst: when investment decisions are made emotionally, the outcomes may be less than ideal. Investors may purchase stocks or real estate with the expectation that the economy’s strong performance will continue, causing their prices to rise. When it blows up, panic selling can cause the economy to contract.

Extremely high inflation: inflation implies that prices rise over time. Normal inflation is not dangerous, but when it becomes out of control, it can drag the economy into recession.

Excessive deflation: deflation, or price declines over time, is more dangerous than hyperinflation. When prices fall, companies’ incomes fall, which leads to lower wages and even more price pressure, creating a vicious circle.

Technological progress: long-term economic growth is aided by technological advancement and new inventions. However, in the short term, the process of adapting to these developments can cause a variety of issues. The decline in labor demand caused by the industrial revolution resulted in a peak in unemployment in the nineteenth century. Some economists are now warning that artificial intelligence and robots may have the same effect.

How does the recession affect individuals?
The most direct impact of the economic downturn on individuals is seen in the labor market. As the economy slows, layoffs rise and it becomes more difficult to find new employment. Those who continue to work may face lower pay, bonuses, or delayed raises.

Those who invest in stocks, bonds, or real estate may lose money. During a recession, business owners’ sales may fall, and bankruptcies may occur.

Banks may also reduce their credit lines as repayments fall.

Is it possible to forecast a recession?
Given that all economic forecasts are estimates, it is impossible to answer this question unequivocally. Nobody could have predicted the covid-19 outbreak, for example.

However, there are some signs that hard times are on the way. The biggest indicators of an impending recession are a decline in consumer confidence, sharp losses in the stock markets, an increase in unemployment, and an increase in non-performing loans.

What is the distinction between a recession and a depression?
The causes of recession and depression are generally the same. However, the effects of depression are much more profound and lasting. Unemployment rises much faster, GDP falls faster, and, most importantly, depression lasts much longer than a recession.

There is no agreement among economists on when a recession becomes a depression, but it is generally accepted that it is more devastating.

The situation that has occupied the world’s agenda, particularly in Continental Europe and the United States, and has begun to be attributed as the biggest economic problem of 2023. Many financial and valuation institutions have reduced their growth forecasts for the second quarter of this year, particularly in light of the post-pandemic Russia-Ukraine war and Russia’s attitude toward energy resources. Rising inflation, particularly high energy and food prices, is expected to keep the growth rate slowing in 2023.

In the second quarter of this year, the US economy contracted by 0.9% from the previous quarter. It is noted that it has already entered a technical recession, as it has contracted for two consecutive quarters, with decreases in stocks, fixed investments, and government spending.

In addition, many credit rating agencies have already begun to assess their concerns about this issue in their reports for the next period and 2023.

The Fed predicted in the DEUTSCHE BANK report that policy rates could rise to the 5–6% range and that the US would enter a recession next year. According to the report, the tightening and accompanying financial turmoil will cause an economic recession next year, and the unemployment rate will rise by a few percentage points. According to GOLDMAN SACHS, the likelihood of the economy entering a recession in the next two years is 35%. Bloomberg Economics’ recession probability model predicts a 44% chance of a recession before January 2024.

Why recession?
Why now?

Concerning their concerns, with the easing of monetary policies during the preceding period, namely the abundant dollar and other currencies, inflation in the United States and other countries, in particular, rose rapidly. When Russia’s aggressive policies over the last six months are combined with this inflation, it appears that Russia, a major commodity exporter, used commodities as a weapon against the West, fueling the inflation that has already increased with the money supply.

Western central banks, particularly the Federal Reserve, have continued to raise interest rates. The most recent increase was 0.75 points. They claim to be reducing their balance sheet. This means that the global abundance of the dollar (USD) will decrease. At least in this form and definition, we can answer the recession and why it happened.

Another question should now arise in minds;

- Will the United States' high-interest-rate policy harm its own economy?

- Who will suffer the most if the United States contracts?

- Why isn’t a minister in the United States coming out and saying that we chose high growth over fighting inflation?

Let us attempt to respond to these questions in our own unique way (from where we are and from our point of view);
We can say that the US society has gradually increased its economic purchasing power over the years. Although there is clearly significant income inequality in American society, there is no widespread poverty. With interest rate hikes, the US economy is actually entering a recession. This can be interpreted as a reprieve. It will slow the economy’s wheels, will not give voice to a certain increase in unemployment, and in return, it expects to protect the purchasing power of the country’s society.

Why then?
Do you believe a country with a high level of armament, and thus the possibility of looting, would take such a risk and desire chaos at the heart of the “western” financial mentality?
That is why a minister cannot openly declare, “We chose high growth over fighting inflation!” As a result, inflation is the greatest foe of these countries, particularly the United States and the Western world, which serve as the foundation of free trade. The cost of living is the thing that can change the system and activate society. This risk factor is much higher if you are in a multinational structure, such as the United States.
Of course, developing countries, which require the hottest money, will be impacted by this cooling period.

Let’s take a look at where we are;
- Will Turkey experience a recession?
Turkey will not experience a recession. Because Turkey already has high inflation, there may be a recession or even a contraction due to the shrinkage of hot money. This is known as slumpflation.
I believe that public investments will decline, particularly with the KKMH (Currency Protected Deposit Account), which has become a growing burden on the public recently. Even if the public wants it, it will be unable to sustain growth above 0%. In the long run, the country will enter a cooling period with high-interest rates, but I don’t know when or who will do it.

If you’ve made it this far, I’d like to thank you, especially for your eyes, and, finally, for your patience! I attempted to put the puzzle pieces together by combining what I had in mind with what I had read.

UE