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Recessions: 10 Facts You Must Know

https://www.kiplinger.com/slideshow/investing/T038-S001-recessions-10-facts-you-must-know/index.html

kiplinger.com

Recessions: 10 Facts You Must Know
America officially fell into recession territory in February 2020. Here's everything you need to know when it comes to these economic downturns.

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Understanding recessions are vital

Understanding recessions are vital

Recessions are part of the fabric of a dynamic economy. The average investor fears recessions because they mean lower home prices, lower stock prices, and less or no work.

Several things ca...

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Naming a recession

Recessions are really "depressions," but the term "depression" seems too terrifying. After the Great Depression, economists began to use the word "recession" instead.

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An official recession

A standard measurement for a recession is two-quarters of consecutive GDP contraction. But the official arbiter of recessions and recoveries, the Business Cycle Dating Committee of...

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Time-frame of a typical recession

The average length of recessions is 17.5 months. The long-term average covers the 1873 recession that lasted 65 months. It also includes the Great Depression, which lasted 43 months.

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Recurrence of recessions

Since 1857, a recession occurred about every three-and-a-quarter years. The government used to think recessions should work themselves out.

Since WWII, the average between recessions is nea...

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The harshest recession

The recession of 1873 was known as the Great Depression until the 1929 recession started.

The recession of 1873 started with the failure of Jay Cooke & Company, a major bank. It caused ...

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The worst effect of a recession

Losing your primary source of income is the worst effect since jobs are increasingly hard to find in a recession.

That is why it's essential to have a few months' salary in cash as ...

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The best time to buy stocks

Historically, the best time to buy stocks is when the NBER announces the start of a recession.

The NBER takes at least six months to determine if a recession has started. The average post-W...

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Spending your money

The best thing to do with your money during a recession is to pay off your credit card debt.

Paying off a credit card that charges 18% interest is equivalent to getting an 18% return on inves...

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Early warning signs of a recession

An inverted yield curve is a more solid predictor of economic downturns than the stock market, consumer confidence, or leading economic indicators index.

An inverted yield curve is when sho...

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The Federal Reserve

The Federal Reserve does not want to start a recession because part of its dual mandate is to keep the economy healthy. But, the Fed's dual mandate also includes keeping inflation low. A cure f...

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SIMILAR ARTICLES & IDEAS:

Recessions come and go

Recessions come and go
  • A recession is "good" or "bad," depending on who it impacts and how badly it affects them.
  • In the last thirty years, a recession has come and gone somewhere in the world every few years.
  • Globally, economies are in recession 10-12% of the time.
  • Economic booms are just as frequent.

Recessions are far from equal

  • Banks are better able to handle a financial crisis than a decade ago. The 2008 recession was about the housing market and shares, which affected higher income groups.
  • The present crisis seems to be hitting the lower-income groups, the vulnerable workers, young, and less skilled. It is similar to the late 70s, early 80s recession, which affected young and unskilled workers.
  • Another lesson from 2008 is that recessions don't always lead to significant numbers of job losses. Layoffs were concentrated among a small number of people, and they stayed unemployed for a long time.
  • In this recession, far more workers will be at risk if social-distancing rules remain in place over a long period.

GDP during a crisis

  • A drop in GDP was expected during the 2020 lockdown. Shops and businesses were closed, and the total value produced by goods and services decreased. In turn, this affected the staff of those businesses earning less money.
  • Furloughs. At its peak, about nine million people in the UK were paid a furlough - the government paid 80% of their salaries, and the employer could choose to top up the rest. Other countries have similar state-backed furlough schemes. These schemes will be coming to an end, and employers will have to decide if they have to lay off employees permanently.
  • The losses are not yet crystalising. People are taking mortgage and credit holidays. It means the losses are pushed further down the road. The financial sector bubble will burst, and we will see real turmoil again.

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