Another Great Depression for 2020?

The global pandemic forced an unprecedented change of how we work, spend and live in the span of only a few months — changes that could reverberate in the coming years or even decades. As countries start re-opening and business operations resuming, we can't rule out the possibility of a recession leading to another great depression.

Could it happen again? That is the question. There’s no official definition of the term “depression.” But compared to a “recession” (defined as two consecutive quarters of contracting economic growth), there are some general rules we can apply— great depressions are global, much worse than typical recessions, and their impact on both the economy and society last far longer.

What the world is facing right now is a crisis of the real economy, as both supply and demand are taking massive hits in an unprecedented amount of time. But just as important is the continuing threat posed by the pandemic.

Hundred of thousands have lost their jobs. Another issue is that not everyone has returned to the job market as well. Laid off employees want to get back to work, even if a business wants to rehire, it also remains an open question whether business owners will be able to rehire those workers if their businesses don’t manage to make a profit in this period of social distancing and consumer-wariness of venturing outside.

Volatility makes people want to save, in case prices skyrocket again. Stock market crashes can cause depressions by wiping out investors' life savings. If people have borrowed money to invest, then they will be forced to sell all they have to pay back the loans. Business credit is needed for businesses so they can continue to run on a daily basis. Without credit, small businesses can't grow, stifling the jobs that they provide.

Certain industries will have a slow recovery and growth if the current situation remains the same (food shops, transportation, oil, tourism, travel). Deflation is another looming threat. deflationary pressures seem like a boon to consumers, but they make it difficult for businesses to raise wages. The result could be a downward spiral. That is similar to what happened during the Great Depression.

Add to that the shift towards protectionism for some countries, global restructuring of supply chains and the current escalating geopolitical issues against the China.

A case against the potential global depression

The world has come a long way since the 1930s. When the Great Depression happened, we didn’t have the social safety nets and political institutions we have today. We also have technology and other advancements that today’s people enjoy. We are basically more equipped in terms of knowledge and wisdom  collectively compared to the people of 1930s.

Perhaps it may not happen in 2-3 years, we maybe experiencing something that leads to one. But nobody knows for sure. What is likely however is that multiple countries will potentially undergo economic recessions in my opinion.

Cushioning the impact

When the economy is uncertain, it's a good time to increase your income, save, and reduce unnecessary spending. Take the opportunity to reduce debt as well. Consider investing in a diversified portfolio for the long term. Also, it won’t hurt to invest in yourself too, whether it is formal education, certifications, skills training or self-learning. The best way to prepare is to have enough resources to be flexible.

“The best preparation for tomorrow is doing your best to prepare today.”

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Another Great Depression for 2020? Another Great Depression for 2020? Reviewed by Vernon Joseph Go on Thursday, June 04, 2020 Rating: 5

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