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Surely a global recession is inevitable? (And a few thoughts on how to Protect yourself!)

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@revisesociology
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Historically, low unemployment and rising wages (widely regarded as positive drivers of economic growth) have also led to increasing inflation - as rising wages means increased demand and businesses put up prices in response.

Most governments have historically aimed for an inflation target of 2% - and increasing interest rates has been the main mechanism for reducing inflation, and reducing them the main mechanism for stimulating economic growth - the former encouraging people to save, the later encouraging people to borrow.

It's now been almost four decades since we saw governments and central banks use interest rates to control inflation.... in the 1970s in America when in the 1970s a combination of a spike in oil prices, and huge expenditure on the Vietnam War led to double digit inflation increases - with interest rates being increased to 20% to bring this under control, at the expense of massive employment.

And the last decade, especially since the Financial Crisis of 2007-8 has seen extremely low interest rates, kept low presumably to stimulate a global economy ever in need of stimulation.

Given that we've had several years of extremely low interest rates, governments (and central banks) now have no room to stimulate economic growth should a global recession rear its ugly head.

A further reason governments (realistically) can't raise interest rates is because any change in the base-rate would mean they'd have to pay more interest on the huge amounts of money they themselves owe on very long terms.

The only strategy governments now have left to them is to literally print money and give it to people should an economic shock like a Pandemic occur.

The theory is pretty crude if you think about it - 'OK we can't lower interest rates to encourage people to borrow money off their own backs, so let's just print some and give it away'.

So far this seems to be working as central banks (mainly central banks but also other institutions) are buying up the various debt-mechanisms that governments have issued in order to raise this money.

However, money printing is inflationary - it devalues the value of the currency used to buy goods and services as the more of it there is, the less valuable it is. This means that any 'newly printed money' given out as part of a 'stimulus package' might well have short term beneficial affect, as it keeps people spending, but it also means that any future wages will have less buying power.

And less buying power going forwards means less demand which could mean lower economic output and a global economy tending towards recession, fore-ever in need of more and more stimulus.

Add to this the increasing environmental pressures placing further demands on governments and people, and probably more variants of Covi-19 on the way, I just can't see a future of stable economic growth going forwards!

What can offset this?

There's basically two things in standard economic models:

  1. Technological developments resulting in cheaper goods and more efficient production and supply chains.
  2. Rising wages in real terms and/ or greater levels of paid-employment.

Personally I'm not one to RELY on other people providing technological solutions to the economic challenges we find ourselves faced with, and as to rising wages, I just cannot see how these are going to get passed onto the average worker with so many businesses struggling to maintain there operations in the pandemic?

I think alternative economic systems HAVE to be part of your survival strategy....

A third solution thus presents itself: that of alternative economic networks - here I'm talking about a combination of

  1. local economies producing a proportion of their basic-needs goods and services locally, as free as possible from fiat economies,
  2. Just reducing your concept of needs and living simply (spirituality may play a role here)
  3. And also (of course) crypto - which offers several opportunities for protecting oneself against the economic uncertainties going forwards while making money - Hive obviously for earning rewards for interacting and Defi springs to mind, for a decent yield, not mention to the crazy world that is Splinterlands.

And no, 5 years ago I never thought that sitting on my arse playing Splinterlands would be a strategy for protecting myself against a global recession either!

Find out more

This Economist article provides a nice overview of the history of inflation

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