How recession started?
According to the assumptions and reports of honorable IMF chief economist and ex- RBI governor Mr. Raghu Ram Rajan.
- US and China over trade.
- Federal reserve over their policy.
- Federal over markets that who is going to blink first.
These factors affecting the real economy around the world by affecting investors, businesses following by consumer. It also affects the trend of purchasing or investing.
Table of Contents
Flattered Yield Curve
Bonds are the chunk of money lending to company or government the agreement over them they repay with interest. Increasing yield curves indicates the expansion of the economy and inverted curves indicate diminishing of the economy. The federal bank controls prices or borrowings from the public they decrease yield rates. Whenever prices increase the yield curve decreases. If prices are low yield curve rates also increase.
Inversion of yield happens when inflation was high. To some extent short term policy rates needed to be high to bring down the long term interest rates. Looking into the recession long term bonds might look very bad. The Strength of the economy comes from still strong consumers who still being held up by strong labor numbers. It seems still the economy is progressing reasonably despite everything thrown against it.
What if the Yield Curve goes Negative?
Negative interest rates are the best indicators of the global recession or economic slowdown. These negative rates are issued by central banks where borrowers are credited interest rather than paying interest to lenders. This usually occurs during the recession to provide a short term jolt that would stimulate the economy and encourage banks to lend more.
- Savers could be charged by the banks for holding their money.
- The intention of negative rates is to have more lending but in reverse, it has an opposite effect because these negative interest rates squeeze profits too much hence these financial institutions lend less.
All economists and experts say whenever yield curves dip into zero world faced recession. US and china deal will not alleviate economic damage in the longer-term concern that some of the same issues like intellectual property theft on restrictions on companies investing across. Anything short term is going to be a cosmetic deal and here central banks are the fall guys and recession is going to risk high on them. In all these incidents bad policies of these central banks need to be blamed.
At the present pandemic situation of corona virus has made this recession more dangerous and brought us near.
Things to do during the Recession?
- Building your emergency fund ( saving six months covering living expenses).
- Don’t sell your stocks at loss (waiting for a long run),
- Stay rational and don’t panic (no panic selling or buying),
- investment ( buy the best stocks at a low price).
- Cut down unnecessary spendings and invest more.
“Every crisis opens an opportunity on the other side, great financial education can keep you at opportunity side”.
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Pursued MBA in finance from Osmania university. Presently, I’m into investment banking and public speaking. Passionate for research. I like cricket, cooking, travelling and socialising during my free time.