America has experienced at least 30 recessions throughout history, dating back as early as 1857. Some experts believe that they have become an inevitable part of the economic cycle that fluctuates between periods of expansion and contraction. Nonetheless, certain measures can still be taken to make recessions less likely. As the nation’s authority on monetary policies, the Federal Reserve plays a critical role in managing recessions. So why do recessions happen and what can the Fed do about it? Watch the video to find out.
The U.S. has experienced at least 30 recessions throughout history, dating back as early as 1857.
Some economists argue that they may have become an inevitable part of the financial cycle that fluctuates between periods of expansion and contraction.
“History teaches us that recessions are inevitable,” said David Wessel, a senior fellow in economic studies at The Brookings Institution. “I think there are things we can do with a policy that makes recessions less likely or when they occur, less severe. We’ve learned a lot, but we haven’t learned enough to say that we’re never going to have another recession.”
As the nation’s authority on monetary policies, the Federal Reserve plays a critical role in managing recessions.
The Fed is currently attempting to avoid a recession by engineering what’s known as a “soft landing,” in which incremental interest rate hikes are used to curb inflation without pushing the economy into recession.
“What they’re trying to do is raise rates enough so demand slows,” said Jason Snipe, chief investment officer at Odyssey Capital Advisors.
But a successful soft landing is extremely rare as the monetary policy needed to slow down the economy is often enforced too late to make any meaningful impact.
It was arguably achieved just once, in 1994, thanks to the Fed’s more proactive response to inflation and good timing.
″[It’s] really, really difficult to get into that really, really narrow zone,” said Stephen Miran, former senior advisor at the U.S. Department of Treasury. “It’s the difference between trying to land an airplane in a really wide and spacious open field versus trying to land an airplane on a very, very narrow piece of land with rocks and water on either side.”
Some experts also argue that policies have a limitation on what they can achieve against an impending downturn.
“Policy tends to operate with long lags, which means the ability to effect immediate change in the economy is quite slow. I also think that increasingly we live in a global economy where the cross-currents that are impacting the economic dynamics are very complex,” said Lisa Shalett, chief investment officer, wealth management at Morgan Stanley.
“These are dynamics that the Fed doesn’t have the tools to address and so to a certain extent, we do think that policymakers have certainly developed more tools to fight recessions,” she said. “But we don’t think that you can rely on policymakers to prevent recessions”
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Why Recessions May Be Inevitable…(read more)
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Recessions are periods of economic downturn when there is a significant decline in economic activities and the overall output of goods and services. They are characterized by high levels of unemployment, low consumer spending, and reduced business profitability. Many economies around the world have experienced recessions at one point or another, and there are various reasons why these recessions may be inevitable.
First, the economy is cyclical. Economic cycles are natural and occur due to various factors, including changes in consumer spending, business investment, and government policies. These cycles typically last anywhere from five to ten years. During a recession, the economy contracts, and growth slows down. Eventually, the economy will recover and grow again, triggering a new cycle.
Second, many economies rely heavily on debt to fuel growth, which can create unsustainable levels of debt. When consumers and businesses take on too much debt, and cannot make payments, or when the value of assets that back the loans falls below the amount of debt owed, a financial crisis can occur. The most recent recession in 2008 was triggered by a housing market crash, which caused a ripple effect throughout the financial system.
Third, the global economy is interconnected, and events in one country can have a significant impact on other countries. A recession in one country may cause a ripple effect throughout the global economy, leading to a worldwide recession. For example, a recession in China, which is the world’s second-largest economy, would have a domino effect on the world’s economies.
Fourth, technological advancements can cause job losses as machines and automation replace human labor. This can lead to a decline in consumer spending, and businesses may struggle to maintain profits, which can lead to a recession.
Finally, natural disasters such as earthquakes, hurricanes, and pandemics can cause a significant economic impact, leading to a recession. For example, the COVID-19 pandemic has caused a significant decline in economic activities worldwide, leading to millions of job losses, business closures, and reduced consumer spending.
In conclusion, recessions may be inevitable due to the cyclical nature of the economy, reliance on debt, interconnected global economy, technological advancements, and natural disasters. While recessions can be painful, they are a necessary part of the economic cycle, and through proper policies and measures, economies can recover and grow once again.
If one wishes to understand the housing problems and wealth inequality in the world today, one should read Thomas Jefferson’s quote below. Though it relates to America, it is applicable to much of the world today. Once one understands this quote, it is easy to understand the source of today’s problems. God bless our world and may peace be on earth.
“ If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered…. I believe that banking institutions are more dangerous to our liberties than standing armies…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."
Co-Founder WASHINGTON
It used to be 2 consecutive quarters of negative growth in GDP, but they changed the definition.
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.
OR they could make cuts until we actually balance our budget.
The finan-cial system has been artificially pumped for over a decade to ensure big pockets were lined; and now those same hands will make a fortune in the largest transfer of wealth in human history by shorting it on the way down. Inflation does have a roll, but that's to keep everyone panicked, and focused on their bills and expenses, rather than focus on the capital crimes of politicians and corporations,I'm still at a crossroads deciding if to liquidate my $ 338k stock port-folio, what’s the best way to take advantage of this bear mar-ket??
What has always scared me the most about the inflation is that we might go into a very bad recession, and that would greatly affect the market. I have been able to accrue up to $293k, and I'm worried about a possible wipe-out from the inflation. I read of someone who's been making more than $23k every month despite this recession. Can I pull that off as a novice?
Recessions are part of the economic cycle, all you can do is make sure you're prepared and plan accordingly. I graduated into a recession (2009). My 1st job after college was aerial acrobat on cruise ships. Today I'm a VP at a global company, own 3 rental properties, invest in stocks and biz, built my own business, and have my net worth increase by $500k in the last 4 years.
Insightful video. I just want to know best how people split their pay, how much of it goes into savings, spendings or investments. I'm 27, and earn nothing less than $150k per year, but nothing to show for it yet
My spouse and I are adding a variety of stocks/ETF to my present holdings for the long term, We've set aside $250k to start following inflation-indexed bonds and stocks of companies with solid cash flows, I believe it is a good time to capitalize on the market for long-term gains, but it wouldn't hurt to know means of actualizing short term profit.
I would say TAKE ADVANTAGE OF THE RECISSION! Recessions are an unavoidable part of the economic cycle; all you can do is prepare for them and plan accordingly. I graduated into a slump (2009). My first job after graduating from college was as an aerial acrobat on cruise ships. Today, I work as a VP for a global corporation, own three rental properties, invest in stocks and businesses, run my own company, and have increased my net worth by $500k in the last four years.
I used to think every investor lose out during recession, meanwhile some make millions. I also thought everybody went out of business during the great depression, but some went into business. Bottom line, there's always depression for some, and profits for others. it all starts with having the right mindset. That said, I've set aside $265k for future, unfortunately I'm a complete noob.
Major indexes booked their worst yearly performance since 2008 thanks to drivers like the recession, war, hiked interest rate and inflation which so far doesn’t seem to be easing off, so I’m left wondering what 2023 has in store for us investors, I’ve been sitting on over $745K equity from a home sale and I’m not sure where to go from here, is it a good time to buy or do I wait?
MONOPOLIZATION , when people lose something someone will gain,cut them off while theyre still small. thats why recession keep happening one reason why I suppose.
the economy is very complicated to explain , but in my understanding its balancing out every money being used out there ,factoring in population and food resource and the one who is balancing it out needs a large amount of cut for them and to funds The media aka propagandas to distract the people using race,gender etc(wondering why race gender etc almost always mentioned when you go to the news or watch netflix any streaming platforms? and a non racist incident turned into a big deal in the news? )
well objectively its the lesser evil I suppose.
Don't you ever smile in my presents again. . . Or even better just stay away from me
Keep those smiles next year seriously think of the new economy where do you see yourself in it
Recession are inevitable because they are beneficial to business class. After a large period of growth production exceeds demand and workers have a lot of buying power. It works as a reset button thats why it happens every 4-10 years
After recession unemployment goes up and job market becomes more competitive while ppl lose assets. After 2008 banks used that opportunity to buy up housing while no one could afford it and it was cheap.
the top 2 percent will make less money but the gap in between the rich and the poor will increase exponentially. The top wont be hurt, they will just have to get rid of there employees and keep making millions. We will be okay, but the majority of america that doesn't have thousands in investment accounts will lose, only a small amount will make big money and the already rich will stay where they are. We are worrying about the wrong things.
JEEZ
Recessions don't impact value. They might lower prices on cost of living. Sometimes I wish the beast would go into a permanent arrest.
Market declines, soaring inflation, a significant increase in interest rates by the Fed, and rising Treasury yields all point to additional losses for portfolios this quarter. How can I profit from the present market turbulence? I'm still debating whether to sell my $125,000 ETF/Growth Stock portfolio.