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Global Financial Crisis: Why Recession 2022 Would be Unlike Any Other?

Skyrocketing inflation and higher interest rates are setting the stage for a massive global financial crisis. The world’s major economies are staring at a steep recession.

According to the eminent report agency, Namoura countries, including the likes of the United States, Japan, the United Kingdom, South Korea, Canada, Australia, and the Euro-zone, are heading into a recession by the end of 2022.

As nations are trying to beat the economic fall, the tightening monetary policies could choke global growth. So, what’s ahead?

A Peak into the Global Financial Crisis 2022

A financial storm is brewing that will be global in nature and could wreak nations economically and politically. As major countries, both rich and poor alike, continue to amass immense debts, the possibility of a global recession is knocking on the door.

Spurred by the easy money policy placed post the financial crisis 2008-09, central banks have elevated spending. Coupled with the historically low-interest rates, the global financial crisis 2022 has become inevitable.

Even before the COVID pandemic, governments were lending and spending heavily. For example, before the pandemic, the public debt of the world’s 70 poorest nations had gone up by 18% of the GDP. However, experts believe the level of indebtedness here was vastly understated.

Four coincident indicators of the economy: Impending Recession
Four coincident indicators of the economy

And experts fear that Sri Lanka’s catastrophic economic collapse is a peek into what may unfold in other nations soon.

Read More: Sri Lanka: What Led the Island Nation to Bankruptcy?

Which Nations are the Most Vulnerable?

Despite the overarching threat of global recession, the binge-borrowing of the poor and middle-income countries persists.

Today, Japan’s debt is proportionately over twice that of the US. However, the Bank of Japan still sticks with its virtual zero interest rate policies. Moreover, the scale of money printing will likely send the already wobbly Yen into a tailspin.

Experts fear that this might set free a financial contagion that will hit the currencies of other Asian economies. However, the crisis can also mushroom in Europe, given the European Central Bank (ECB) continues to buy a massive amount of bonds.

Furthermore, the US economy is slowing, which will be a drag for the rest of the world. Unfortunately, though, the IMF, the supposed doctor for financially troubled nations, is imposing counter-productive prescriptions, including:

  • Currency Devaluation might worsen the spiking inflation
  • Higher Taxes that will cripple recovery

Today’s world lacks leaders who grasp that stable money and low tax rates are fundamental for fast recoveries. In contrast, the Biden Administration is still trying to raise taxes. Even the already imploding global food crisis is worsening due to the Russia-Ukraine War.

Global Financial Crisis: The Debt Ridden Countries

Rising borrowing costs, inflation, and debt are all contributing to fears of an economic collapse. According to analysis, Belarus is on the verge of defaulting on its debt, and at least a dozen additional countries—including Russia, Suriname, Zambia, Pakistan, and Lebanon.

The whole debt cost is astounding. Analysts use a pain threshold of 1,000 basis points in bond spreads to determine that $400 billion in debt is in danger. With about $150 billion, Argentina is the largest, followed by Egypt and Ecuador, each with between $45 and $40 billion.

Read More: The Looming Global Debt Crisis: Developing Nations at the Extreme Risk

However, amidst the recession threat, the global financial crisis don’t seem as daunting for investors.

Why Recession 2022 Would Be Less Damaging for Investors?

The world’s economy is standing on the verge of a steep recession. However, unlike in 2008, the recession is expected to be less damaging and shallower to corporate earnings and investors.

Both the most recent recessions, the dot-com bust of 2001 and the Great Financial Crisis of 2008, were credit-driven downturns. Thus, in both crises, the debt-related excesses built up in the internet and housing infrastructure took over a decade for the economy to absorb.

But, in 2022, the catalyst for a recession is not debt but excess liquidity. The primary drivers here are the extreme levels of COVID-related monetary and fiscal stimulus pumped into the investment and household market. Thus, justifying the spiking inflation worldwide.

And trends dictate that inflation-driven recessions tend to be more lenient on corporate earnings. Other than the historic trends, the following factors are also highlighting a less severe recession in 2022, if one comes to pass:

  • Balance sheets are in the best shape in decades
  • The housing and auto industries are strong
  • Labor-market dynamics remain robust
  • Corporate revenues may be more durable

However, the stock market’s bearish trend may still be 5 to 10% away.

Investors should still exercise patience and consider adopting tax-efficient rebalancing to offset their principal overweight and underweight exposures while pursuing maximum asset-class diversification.

How Can You Be Prepared for the Recession 2022?

No matter which factor plays a significant role in instigating the global financial crisis 2022, it’s crucial for you to be ready to survive if a recession plays out. Here’s how you can be prepared now:

  • Reassess Your Monthly Budget: Cut down on unimportant expenses and focus on saving more. Avoid EMI payments while purchasing luxury goods.
  • Postpone Aggressive Investments or Major Purchases: The likelihood of employment instability and regular income flow increases if recession strikes. Therefore, delay making significant purchases or aggressive investments that can be considered later.
  • Prioritize Debt Repayment: Analyze your saving and income and ensure you have enough funds to repay your debts. Make sure your credit card bill is paid and avoid mounting them any further.
  • Keep Up-Skilling: Work on your skills to create employment stability so that temporary glitches do not cost you your job. Additionally, this will promote monetary security.
  • Build a Solid Financial Plan Now: Not having enough money can impact every aspect of our lives. You can safeguard and well-prepare yourself for any recession by performing frequent checks on your budget, savings + investments, making compounding work for you, and setting powerful financial objectives. This will give you the strength to sail through difficult times.

Now, with the cost of money spiking, the posssibilty of an impending recession has become inevitable. However, the way forward is clear, but the leaders are floundering.

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