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What is a Recession?

Everyone knows we are in a recession. But not everyone, knows what a recession is.

So what is a recession?

According to the real definition of a recession, it is simply two quarter of negative gross domestic product. In other words its 6 months of negative growth for the economy. The reality however remains that the real definition of a recession is not a negative one, it is simply when the market needs an equilibrium.

A recession is a market adjustment that is caused by the boom of an over inflated market which in this case was real estate.

In simple terms, the real estate market had too many players and they were winning too fast,which was causing other markets to grow the only negative was that it wasn’t real growth, but rather inflated growth based on money people didn’t have. As an example, someone’s home was worth $200,000 more than they bought it in less than 6 months, they refinance or take out a home equity and re-spend the money on lets say cars,  if you multiply that by 50,000 people that did the same thing, then you get an over inflated car market, because car dealers sell more than ever but this trend cannot keep going forever and so therefore a recession readjust the market that started causing this. Real Estate needed this adjustment and it got it.

Recession Cartoon

But then why does it last so long?

Recessions are known to last about 9-10 months but this one seems to be taking much longer. Why? Well, its quite simple, it seems that our economy is in a recession, but the housing market is facing a depression and therefore a depression combined with the recession that the other markets are in takes a bit longer to get out of but in due time will occur, so ride the wave.

The global recession we are facing is causing commodities (gas, crude oil, goods) to be traded at all time lows and therefore making life affordable. Lets keep in mind however that even commodities go up and down and therefore you should be prepared for rising prices before the rest of the markets readjust. You should also keep in mind that markets do not fix themselves with injections of money like the government has been doing, but rather simply time. Time is the ultimate healer Even though none of us like to be patient.

In conclusion, recessions are not evil, they simply help readjust wen we get greedy, and they remind us that if we do not save, do not control our spending, we end up here much faster than we think and it impacts us more than others.