It’s vital as a trader and saver that you better understand the history and causes of recessions. Recessions can be described as two months of economic downturn. In most instances, this metric holds. However, the current economy currently resides in a grey zone due to the unusual reasons for the downturn. As such, some stats suggest that the economy is in recovery while the overall GDP continues to decline.
Why You Should Care About Recessions
There are endless reasons why you need to take some time to learn about recessions. For one, the more you understand about these necessary market changes and the better you will be able to spot them and prepare. Additionally, you can buffer the effects of these losses by understanding the armrest and new technologies like cryptocurrencies.
Is This a Recession?
While the debate rages on regarding the current state of the economy, its vital to understand that the market is heading towards recession according to most analysts. There have been over two months of decline in GDP and inflation is hitting 40-year highs in many places around the globe.
A recession usually brings inflation to the market. Inflation strips you of your buying power and causes a host of other issues that can decimate an economy. If left unchecked, hyperinflation can mean the end of a currency. Interestingly, the great depression and other major downturns led to the creation of the Central Bank.
Originally, this group’s main purpose was to control inflation through interest rate adjustments. Today, the group still serves this role and has taken additional regulatory powers. Here are some of the most noteworthy recessions in US history and what caused them and how they altered the market forever.
History of Recessions in the US
In the early days, it was very difficult to fight inflation. The currency was new and faith was still shaky in its merits. There were no regulatory groups that had the power to reduce the impact of recessions on the market. As such, it made sense to create some group with these powers. The Central Bank was the organization developers to take on this role.
The First recorded recession occurred in 1797. It began after the First Bank of the United States and U.S. Treasury Secretary Alexander Hamilton decided to print more money. The expanded supply led to a spike in inflation. Interestingly, the first recession shares a lot in common with today’s economy.
Overprinting is still a major problem for savers. During the COVID-19 pandemic, the government printed 33% of all ISD in circulation. This increase in supply lowered the value of the USD further and created a host of other problems. The main difference is today, traders and savers have other options like cryptocurrencies and safehaven tokens like META 1.
In 1857 the country would experience its next major recession. This time the incident was brought on by a fraud case against the Ohio Life Insurance company and the sinking of a ship full of gold destined for NY. At the time, the USD was backed by gold and many in the market felt that the sunken ship carried enough gold to make the USD no longer supported by gold directly. This sentiment led to a run on the banks and more economic hard times.
Only a few decades later in 1893, the major transportation firm Reading Railroad would fail and send shockwaves through the US economy. The failure has been attributed to a speculative bubble brought on by an overhyping of the profit margins and efficiency and speed that new lines could be brought to the market.
The failure was so spectacular that citizens began to make runs on the bank. Banks suspended withdrawals as part of their protection mechanisms which only made the problem worse. It was months before the national GDP recovered and began to show positive gains again.
The Great Depression
When you think of recessions, the main incident you probably conjure in your mind is The Great Depression. This period lasted from 1929-38. Interestingly, it marked the darkest time in US economic history. It was the longest and deepest recession so far. A quick look at the stats reveals just how dire the situation had become during this time.
Unemployment reached a record 24.9% with nearly a quarter of the population unable to find employment. This led to a rise in crime as people were desperate to feed their families. Inflation rose as well. There is a famous picture of a man with a wheel barrel full of cash looking to buy a loaf of bread from this era.
FED Raises Interest Rates
The main cause of the great depression can be traced back to multiple reasons. The most prominent reason was that the Fed raised interest rates in 1928. They continued to raise rates to fight inflation throughout the entire ordeal. In 1929, the stock market crashed and many people were left without anything.
On top of all of this despair, the Midwest experienced one of the worst droughts in recorded history. The drought lasted a decade and created so much dust it became known as the dustbowl. People were hurting for food and employment with the Great Depression only ending when the drought stopped.
Raising Rates Again
In1949 the Federal Reserve again instituted another recession by raising interest rates too quickly. The recession saw unemployment spike to 7.9. Luckily, the recession was milder than the previous with it only lasting around a year before the markets began recovering.
Only a few years later in 1953, the FED would again cause the market to retract. This time the interest rates were tightened to support eh Korean War. The Korean War, also called the Forgotten War due to its lack of media coverage, was hugely unpopular in the US with most of the country still bitter from the huge losses of WWII. The sentiment was so bad that the government decided to provide Puerto Ricans with citizenship so they could be drafted to fight the war rather than mainlanders.
Oil Related Recessions
In 1973 the first oil-related recession occurred. The markets were unstable due to global conflicts in Vietnam and the Nixon administration placed labor wage restrictions on firms that were too high to meet. They led to a sudden firing of a large percentage of the workforce. Nixon made the problems worse when he chose to remove the USD from the gold standard to enable them to print more money to fund the Vietnam war.
These issues got worse at the start of the OPEC oil embargo. The incident caused huge inflation in the US with gas prices nearly 4x overnight. These prices and restrictions led to long lines and exorbitant gas prices at the pump. It also led to rising unpopularity in the Nixon administration.
First Double Recession
From 1980-82, the US experiences its first double recession. This major event began when the FED decided they needed to curb inflation by raising interest rates again. These actions cause the market to decline which led to layoffs. The unemployment rate hit 10.8%. These issues were only the tip of the iceberg as an Iranian oil embargo caused gas prices to soar again.
Invasion of Iraq
Ten years later from 1990-91 the US would experience another major economic shift. The Iraq invasion of Kuwait and the subsequent war that followed left markets uneasy. There was a 9-month recession that followed with unemployment rates hitting 7.8%.
Dot.com Bubble Pops
In 2001 the dot.com bubble burst and sent traders reeling from huge losses. The dot com bubble is a term that refers to the hugely overpriced internet stocks that were trading at the time. These markets were driven by speculation which quickly turned sour after the Y2K scare and 9/11 tragedies hit.
Notably, the Y2K scare was a belief that because the dos systems underlying computer operations date counter stopped at 1999, all computers would fail in 2000. Notably, the concerns were unfounded and a simple patch turned the entire fiasco into a bit of weird history. However, these issues combined with an attack on the financial epicenter of New York led to an 8-month recession.
Subprime Mortgage Crisis
The country experienced the longest recession since the great depression from 2007 -2009. This recession was called the subprime mortgage crisis. It was brought on when the real estate bubble popped. The loose lending practices in the real estate market that led to the issues included lenders providing funding that exceeded the value of the properties to those that didn’t qualify for loans.
These actions caused the real estate market to expand and housing prices to rise quickly. The real estate bubble saw people bidding over the market value for homes as the demand was so high. However, when the loans began to default and people lost their homes and lively hoods, it became evident that the housing sector was being fueled by speculation during these times.
2020 turned out to be the worst recession since the great depression. The world saw the economy shrink by 31%. There were massive losses of jobs due to the COVID-19 pandemic quarantines and shipping disruptions. Unemployment hit 14%. The world is still in recovery from those days and COVID is still a part of daily life. In total, 20.55 million jobs were lost and never returned.
Today, the economy faces another recession brought on by many of the same reasons as its predecessors. Overprinting, interest rate hikes and housing bubbles can all be checked off the list for the current state of the market. However, unlike these other factors, employment and exports are on the rise. As such, the current economic situation has led to a debate on if the economy is in recession or recovery.
Protect Your Holdings from Recession Using Cryptocurrencies
The introduction of cryptocurrencies into the global financial markets has had a resounding effect on how people protect themselves and generate wealth. Blockchain operates in a direct P2P manner that eliminates the need for middlemen. As such, the best options are more efficient and remove bad monetary policies such as over-printing from the equation.
The introduction of Safehaven assets like META 1 furthers the argument to integrate these advanced coins into your saving strategy. META 1 is an advanced multi-asset-backed gold-related safehaven token. The protocol derives value from a basket of self-appreciating gold-related assets.
This structure is ideal because gold always experiences increased demand during times of market uncertainty. As such, gold pegged stablecoins like META 1 share in the appreciation. This structure enables users to enjoy the benefits of gold and the efficiency and security of cryptocurrencies. Here are some of the other reasons why incorporating a cryptocurrency into your recession strategy makes sense.
One of the biggest prospects of a decentralized future is the openness provided to users. In the current centralized system, there are so many roadblocks and hurdles that one must jump through to gain access to even the most basic financial services. Cryptocurrencies take this approach and flip it on its head. Platforms like the META1 Coin provide a more open and fair option to the market.
Users don’t need to provide personal data that can then be stolen or have financial histories. Instead, the system is designed to enable anyone to gain access to the market. The protocols are set up in a manner that you are judged based on your financial metrics rather than trivial characteristics such as your location or credit history.
The global economy is missing out on huge growth potential due to its closed-off nature. Cryptocurrencies rise above political squabbles. They remove human emotion from the financial equation. In this way, the world could see an economic boom from all regions as more vendors and users adopt this game-changing tech.
Another vital way in which cryptocurrencies could improve the lives of millions is through frictionless international payments. For many regions in the world, remittance makes up a large percentage of the country’s GDP (gross domestic product). Sadly, the current systems can take up to 7% of your fees when sending fiat currency.
Cryptocurrencies operate in a peer-to-peer manner that eliminates the need for middlemen. This approach lowers fees and improves efficiency. Notably, the blockchain remittance market is already experiencing a boom. Analysts predict this trend to continue over the coming years which could lead to a crypto-dominant market.
Another change in scenery that cryptocurrencies will usher in is more earning opportunities. The introduction of DeFi (decentralized finance) has created a unique opportunity for users. DeFi systems remove the bank from the equation. Instead, the funds get redistributed throughout the community.
For example, the METANOMICs DeFi ecosystem provides users with a variety of ways to secure passive income. You can stake your META1 Coins which is the act of locking them into a network smart contract. Staking is ideal for new users because you can determine your rewards based on the number of tokens you stake. As such, staking is a feature that is gaining in popularity rapidly.
The META1 Coin offers users another great way to secure rewards – the META VAULT Savings account. This network-held savings account pays out a 10% APY which is more than most networks staking rewards. Notably, your rewards are also paid in META 1 Coins which enables you to increase your stake and create a self-generating wealth loop.
Understanding Recessions and How to Stay Safe in 2022
The main point is to understand that the FED and outside factors can cause recessions quickly. You know understand that you have options during a recession. You don’t have to suffer from inflation-induced losses or bad monetary policies. The introduction of safehaven assets provides the world with an intelligent alternative to the status quo and a viable way to avoid recession-related losses.