Impact of Recession – 4 Undeniable Truths
January 7, 2010
The recession of 2008-2009 will last in the minds of many individuals for the rest of their lives. We have seen companies suffer unprecedented losses, countries brought to their knees and individuals losing their entire fortunes in a matter of hours. To compound the issue is that in the aftermath of all these losses, is the revelation that all this could have been avoided with better fiscal planning, investors being more pragmatic and less dishonesty on the path of investment traders. Irrespective of who is to be blamed, the overwhelming fact is that this recession has been one of the worst and its effects will usher in various changes that should prevent it from reoccurring.
Changes because of the Recession
The recession has led to many individuals and government to rethink their economic strategies to drag themselves out and prevent falling back into recession. Some of these changes include:
1. Currency Changes: The days of the rule of the US dollar are over. Since the advent of the latest recession, we have witnessed the value of the US dollar falling against other major world currencies. In addition, many investors are shifting their investments from US dollars to gold as they now see gold as a more secure format of hording their money. This has also triggered a rise in the price of gold thus reaping huge profits for early bird investors.
2. Consumer changes: The world of China manufactures and the US consumes is now confined to the history books. The credit downfall in the US and subsequently in other major commercial markets resulted in US consumers tightening their belts and literally brought the consumer driven market to a standstill. As a result, manufacturing countries such as China have to turn to their own population by implemental fiscal policies that promote local spending. Thanks to their large population, China’s economy with still growing while other countries broke under the burden of the recession.
3. Fiscal Policy Changes: The recession have ushered a wave of fiscal changes. To counter the effects of the recession each country has had to formulate their own strategy based on their financial capacity. In the US, we have seen extensive government spending to boost employment, the implementation stringent rules on bonus packages for top executives of financial institutions and the lowering of interest rates to boost borrowing.
Japan is battling a problem of deflation where prices keep dropping due a rise in the value of the yen against the US dollar. As a result, they are implementing policies that will add some controlled inflation to their financial system.
Other countries such as Iceland have had to resort to borrowing from the IMF to sure up their finances as all their national reserves dried up because of the recession.
4. Political Landscape: Prior to the recession, the world was in a one-poled mode where all events were dictated by the United States. However, the crippling recession has brought the US to its knees to an extent where they have had to resort to getting financial assistance from countries such as China. This has significantly rescinded their political clout as they are now unable to pressure these countries to conform to their wishes as before.