In 2006, UK Prime Minister Gordon Brown promised he had put an end to boom and bust – and deemed the UK to be on a stable economic trajectory. A year later, the global economy started to implode in the biggest recession since the ‘30s. Awkward… 🤭
Recessions are an unfortunate part of economies – they destroy businesses, put people out of work, and permanently alter the way the world works. But what are they, what causes them – and how can you prepare for the next one? Let’s plunge in.
What is a recession? The technical definition of a recession is two consecutive quarters of negative economic growth, using gross domestic product (GDP) as a measure. But the US National Bureau of Economic Research (NBER) has a broader definition:
"a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales."
No matter how you define it, the underlying meaning is still the same: recession is the economy shrinking. This is just part of the business cycle – periods of growth followed by periods of contraction. Think of it as two steps forward, one step back: according to the NBER, each economic expansion since 1945 has lasted an average of 58 months, compared to 11 months for each contraction.
Why should I care about recessions? Recessions have a massive impact on the economy: they affect asset prices, interest rates, and unemployment – and can even bring about permanent changes to laws and politics. In other words: recessions can and will affect your finances. Understanding what causes a recession and the effects it can have will let you invest better during one – like a Targaryen, you could come out of the fire unscathed. 🔥
In this Pack, we'll look at what brings about winter recessions and how they affect economies – so you can be prepared when the next one hits. First off: what pushes an economy off the edge?
