10/19/2017

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Recession

A recession occurs when prices on goods and services rises until consumers can not afford them, thereby triggering a reduction in purchasing power, a slowdown of the economy, layoffs, business closures, and a drop in consumer confidence.

A recession may also happen when The Federal Reserve Board raises interest rates in reaction to rising prices and other inflationary forces in the economy, usually in association with other governmental agencies, in an effort to combat inflation by prompting the economy to lose steam.

A combination of all the above factors, plus high energy costs, may cause a sharp downturn in the economy. It usually has an immediate effect on the real estate market, the stocks and bonds market, and other segments of the economy.

The definition of recession that most economists use is a period of declining economic output that lasts six months or more.

During periods of recession, many businesses shy away from buying more inventory, or sell off, sometimes at a loss, what they already have and most capital expenditures are put on hold.

The government, through trial and error, has developed checks and balances to maintain a certain amount of control when the economy becomes stagnant, or overly inflated, such as raising or lowering interest rates.

Cuts in interest rates, at the most opportune time, are designed to stimulate the economy by motivating businesses and private enterprises to increase production and expansion.

To control a moderate recession, interest rates are usually cut at a gradual pace to stimulate the economy, giving companies and investors the motivation to continue growing their businesses.

A moderate recession can be effectively controlled but a deep recession may call for drastic action. If a strong recession is not handled quickly and decisively, it may become hard to stop and the economy might slip into a depression.

Depressions are not common in the United States, but the nation went through a serious depression during the 1920's. It caused havoc on the economy, the work force, and negatively affected millions of families, not just in the U. S., but around the world.

During times of economic recession, along with layoffs and business closings, many homeowners may face bankruptcy and foreclosure.

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