Before the pandemic, everyone investor, stockbroker, hedge fund manager and trader said we were long overdue for a recession or a serious market crash. It is true that the market crash of 2008 which was related to real estate was a very difficult one and affected a lot of people, but I want to ask a few question; before the pandemic, were we truly overdue for a market crash and a recession? Did the pandemic effect on the market have more to do with the believe that we were long due for a recession or because there was a lockdown?
Between the year 2008 and towards the end of 2019, the market was going up high except for a little market crash in December 2018 in the United State. The world has been experiencing a sweet ride on the stock market and when it was ten years economics and financial experts started speculating a market crash. Never mistake a market crash to a recession. A market crash is a drop in the value of stocks due to certain circumstances such as fear, news, loss of trust in the market, and many more but a recession is a drop in GDP of a country for 2 consecutive quarters.
Why do we have a recession?
When the economy is doing well, people tend to live above their limits, in fact most of them live in debt but they are confidence that they would pay off the debt since they have their jobs secured as well as many others believe that their 401k could pay for their debt while they plan to retire. With this people pile up debt from simple credit card debt, to student loan, mortgage debt and many other debts which then goes beyond their earning. Spending is one thing that makes up the GDP of a country, but these things change when there is an economical downtime caused by fear, trade war, health problems such as epidemics, wars, regulations and many more. When these economic issues start to affect production and customer interest in products, then it starts to affect customer way of spending which then affects the GDP of the country. Most times, an economic issue will affect the stock market. When this happens, people start to keep money and start to pay off loans gradually instead of spending money at malls, resorts, and other place, customer purchase becomes very low and people start to fear for the future. This affects companies and they start to lay off workers to maintain decrease in demand. If this continues for two consecutive quarters, then there is a recession.
If there were no pandemic, would there have been a recession in 2020?
Since people had been speculating a recession since 2018 as a lot of analyst say that 10 years is enough time to have a downtime in the economy, which did not happen until the pandemic. Furthermore, the economy was doing great even the Christmas crash of 2018 did not affect the economy. It was true that oil price was dropping worldwide, trade wars were springing out of nowhere but if the pandemic didn’t occur, would all these had caused a recession?