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You’re going to hear the word “recession” a lot in the coming months. In this video I want to explain what recessions are and why they happen.
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Johnny Harris is an Emmy-winning journalist. He currently is based in Washington, DC, reporting on interesting trends and stories domestically and around the globe. Johnny’s visual style blends motion graphics with cinematic videography to create content that explains complex issues in relatable ways.
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BREAKING: Recession News
LEARN MORE ABOUT: Bank Failures
REVEALED: Best Investment During Inflation
HOW TO INVEST IN GOLD: Gold IRA Investing
Why Recessions Happen
A recession is generally defined as a significant decline in economic activity, characterized by a contraction in gross domestic product (GDP), a decline in real income, and high unemployment rates. These periods of economic downturn have occurred throughout history, affecting nations and economies on a global scale. While recessions can have devastating impacts on individuals and communities, understanding why they happen is essential for policymakers to design effective measures for prevention and recovery.
1. Business Cycles
The primary cause of recessions is the natural ebb and flow of the business cycle. These cycles are periods of expansion and contraction that occur repeatedly within an economy. During an expansionary phase, economic activity flourishes, businesses thrive, and employment rates increase. However, as this cycle reaches its peak, imbalances build up, such as excessive borrowing and speculative investments. Eventually, these imbalances become unsustainable, leading to a contractionary phase and triggering a recession.
2. Financial Crises
Recessions can also be sparked by financial crises. When excessive risk-taking and speculation occur in financial markets, they can become vulnerable to sudden shocks. For instance, the subprime mortgage crisis in 2008 was a key trigger for the Great Recession. The collapse of housing markets and the ensuing financial contagion caused a severe downturn in the global economy. Financial crises have the potential to amplify the effects of a business cycle contraction, making recessions deeper and more prolonged.
3. External Shocks
External shocks, such as geopolitical events or natural disasters, can also play a significant role in causing recessions. These events disrupt normal economic operations, often leading to a sudden decline in consumer and investor confidence. For instance, the oil price shocks of the 1970s, resulting from geopolitical conflicts in the Middle East, led to a recession characterized by high inflation and unemployment rates. External shocks can be particularly challenging to predict and mitigate, making economies susceptible to sudden downturns.
4. Structural Weaknesses
Recessions can also occur due to underlying structural weaknesses within an economy. For example, excessive dependence on a single industry or sector can make an economy vulnerable to external shocks. If that industry experiences a downturn or faces competition from global markets, the entire economy may suffer. Structural weaknesses can also arise from inadequate institutional frameworks, such as weak financial regulations or inefficient labor markets, making economies more prone to recessions.
5. Monetary and Fiscal Policy Mistakes
In some cases, recessions can be the result of monetary or fiscal policy mistakes. Central banks and governments have the tools to control interest rates, money supply, and government spending, which can influence the overall health of an economy. If policymakers misjudge the timing or magnitude of their interventions, it can have unintended consequences. For instance, excessively tight monetary policy can restrict lending, leading to a decline in consumer spending and investment, ultimately leading to a recession.
In conclusion, recessions are complex economic phenomena resulting from a combination of factors. The inherent cyclicality of the business cycle, financial crises, external shocks, structural weaknesses, and policy mistakes can all contribute to periods of economic downturn. Understanding these causes is crucial for policymakers to formulate appropriate responses, such as implementing countercyclical fiscal policies or regulatory reforms. By learning from past experiences and adopting proactive measures, economies can minimize the frequency and severity of recessions, fostering sustainable growth and prosperity.
Great video!
https://youtu.be/eyCaXPcDvng
This graph goes up not because of science per se, but because population exploded, therefore more consumers.
This episode helped me to understand the GDP & Recession as simple as possible. Thanks for that. By the way, It is really worthwhile if you could do a segment on the Capitalism vs Socialism too.
We have truly become slaves to our own economy to where if an artificially created number (which doesn’t really represent living standard anymore) starts going down, we stop producing products some of which are life saving, and stop providing said products just because. The economy should serve the people, not the other way around.
A recession will inevitably happen in a capitalist economy. You require more people to buy more stuff who requires more resources, which would require more planet earths. Which is where you can probably see the issue. Recessions benefit those on top because a hundred thousand dollars don’t matter as much to them as they would to the average joe, plus they get to buy everything cheap because the demand for buying things is so low. Also, define unemployment. Politicians and capitalists are very good at massaging numbers.
@johnnyharris I feel a Brexit recession video coming… Take a look at at the inflation / interest hike numbers. Is there such thing as a National Recession, localised to one country?
Recession happens due to a simple reason. In capitalism, capitalists or the factory owners always aim for more more profit, irrespective of the need of the customer. So, they inject money to produce more product, which creates artificial supply abundance, hence less demand. This creates a chain reaction and causes recession. The only beneficiary of these recessions are the owners.Though their profits reduces, but they do not suffer like common people. At the end they create next boom and the cycle goes on
Some economists have projected that both the U.S. and parts of Europe could slip into a recession for a portion of 2023. A global recession, defined as a contraction in annual global per capita income, is more rare because China and emerging markets often grow faster than more developed economies. Essentially the world economy is considered to be in recession if economic growth falls behind population growth.
The background music is realy loud… especially thouse bass. It makes your voice low…
How do we find out how much money a country has to spend each year (our budget)? Or is this the wrong way to look at it?
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Loved the timed video. Your videos are generally too long and repetitive. Thanks
Recession is most likely the result of an external factor. For the first time in decades, the United States is losing its clout as a federal reserve currency. They don't have any more economies to use to control inflation, and less money is being spent on stock and oil trading than in the past. They all lend support to the idea that a new multilateral world order is in the works.
As prices go up like crazy, and they have been, people decide to buy less cause they feel like they're getting ripped off. Rent goes up, interest rates go up, more prices go up. People spend even less, CAUSE THEY HAVE NO SPENDING MONEY. They ask for a raise cause for some reason their company is making records profits. As people get raises, they feel like they have spending money again, so they go out and spend again.
So as inflation goes up (companies are getting greedy and see other companies raise their prices, so they raise theirs) people spend less. So, if they want people to keep spending money, stop artificially raising the inflation rate!!! As the rich hoard their money, they cry to the rest of the population "please spend more money! The economy is hurting" while they don't spend a dime, pay nothing in taxes, pay their employees less, and lay them off.
Won't someone think of the rich!?! They need help!
When did this channel become a government propaganda mouthpiece.
further proof that capitalism just doesnt work
Several of the biggest market experts have been voicing their opinions on exactly how awful they think the next downturn would be, and how far equities may have to go, as recession draws closer and inflation continues.. well above the Fed's 2% objective. I'm trying to build a portfolio of at least $850k by the time I'm 60. I need suggestions on what investments to make..
I teach primarily English to young ESL students of 10-14 years old, but I also teach them other subjects too. At the moment I'm teaching them the basics of economics and this video would be absolutely perfect to show them (their English is good enough to follow along) – if only he didn't use that one expletive in the middle of it. Especially given that it's unnecessary. He could have said 'stuff' instead. I know his primary audience isn't this age group, and it's not a particularly strong expletive, but it does make in inappropriate to play in a classroom setting. Such a shame.
This video is absolutely amazing!!! Why i could not find your channel earlier, please keep creating such an amazing videos!!!
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I love your content ❤
I'm wondered to see that noone talking the fact that Britain looted africa , India . More than trillion and grew . Now can't survive without colonies. A parasitic county England
Engagement engagement engagement
Very nice explanation. "How The Economic Machine Works" by Ray Dalio on YT also has a fantastic explanation. This helped me understand our capitalistic cycle at the fundamental level.
I just wanted to point out that recessions don't happen "just cuz". They happen because the bankers, namely the federal reserve bankers, decide every few years to raise the interest rates on government issued bonds. which causes the chain effect of a recession.
Admittedly I'm not a professor of economics but having been through 2008 as an adult and now experiencing 2023, I feel that the government set a tone that even if banks where irresponsible with their investments and loans if the bank was big enough it would get bailed out… Now we see an insane amount of investment firms buying up all the real estate and I can't help but think they're over investing with the hope that taxpayers will bail them out again when the chickens come home to roost… But that's just me.
If that keeps happening for the past hundreds of years every couple years why not create a system that works without recessions every couple of years? Find a better system?