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What the heck is a recession?

Guest post by: Rhonda Sherwood

Article Overview: In simple, easy to understand terms.

What the heck is a recession?

What the heck is a recession?
Well we now know that we are officially in one, so what the heck is it? In simple terms, a recession is when the economy stops growing and for the most part, starts going in reverse. Technically it is described as two or more consecutive quarters of negative growth and job losses.

Why does a recession get worse?
As companies start making less money they cannot continue to hire people or employ some of their existing workforce and layoffs start to happen. You may buckle down and start to spend less because you are now either out of a job or worried that you soon will be. Guess what happens if we all stop spending? Businesses sell even less and profits go down even more and it all starts all over again with more layoffs.

So how does a recession end?
The short answer, when the reverse starts happening. For the most part, a recession will correct itself as interest rates drop to a level that encourages borrowing and spending again.

Is this why interest rates keep dropping?
Yes. When the Bank of Canada drops the interest rates, it’s as if they are putting our money on sale. When things go on sale, people tend to buy. Imagine that you borrow $100,000 at 7% to buy a home. Your monthly payment is about $700. Today you can get a mortgage anywhere from 4 to 6%. So lets say you got a 4% mortgage today, then your monthly payment will be about $530.00. That’s almost $200 cheaper a month. This means that more people can now afford to get into the housing market.

So if it costs me less to borrow money, am I more inclined to do so?
Exactly, when rates are low and money is cheap, people and businesses will borrow and start spending again. If we are all spending again, the economy will start expanding.

Isn’t credit and spending how we got into this mess to begin with?
It wasn’t that simple but more a deadly mix of easy money, predatory lending, an unsustainable housing boom, a lack of rules and regulations and the fabrication of complex and treacherous financial instruments that have basically caused this global recession

Last thoughts
Well we will come out of this, we always do but it takes time…………..

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Article Tags: bank of canada, consecutive quarters, easy money, economy, housing market, interest rates drop, job losses, layoffs, mortgage, profits, recession, rsquo, short answer, what the heck, workforce



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The Hidden Hand Effecting Your Bottom Line - If you are based outside the U.S and run an online business, you'll probably receive a lot of your payments in U.S dollars. When the recession hit I saw a lot of non-U.S business people boasting how they [u:20bfadx5]hadn't been effected by the recession[/u:20bfadx5], brushing off the recession as something that was not important. But they [u:20bfadx5]overlooked the hidden hand[/u:20bfadx5] effecting their profits. The currency markets which for non-U.S businesses paid in U.S dollars has masked the effect of the recession somewhat, and has an incredible effect on your overall profits. Looking at my profits over the past several months I can see fluctuations up and down. I may have a hard time attributing what is causing these fluctuations if I believed the recession didn't effect me because overall my earnings and traffic are up. But then I compare to the U.S - ££ exchange rate, and notice a [u:20bfadx5]strong correlation[/u:20bfadx5] with my profits. When the dollar is strong my profits are higher, and when it is weak they are weaker. It didn't account for all fluctuations but the effect was very strong. I know most people are aware that exchange rates effect their business, but I don't think people realize how strongly it's effects can be, and how closely related to the economy this is. So to say "the recession didn't effect me" because your profits went up can be [u:20bfadx5]very wrong[/u:20bfadx5]. The hidden hand of exchange rates could have improved your profits, and the exchange rates changed due to changes in the economy, i.e the recession. The recession has caused this fluctuation in exchange rate as people fled from the stock market into cash, and with the $$ being the biggest currency in the world, more people fled into the dollar, pushing up its value against other currencies. When the stock market bounced in March and people moved back into stocks and other investments, the dollar weakened. In addition I did see a overall drop in advertiser spend which wasn't just attributed to the dollar weakening after March. I attribute this to advertisers cutting back their budget in response to the economy, but given a change in mood and outlook in recent months this is now reversing and advertiser income is up despite a weaker dollar. So the recession has played a bigger role in my business than at first glance, so just because profits are up does not mean my business is not being thrown around by external economic factors. For this reason I've studied the economy, made a prediction on what is most likely to happen based on trusted sources with the strongest track record, and made a plan for that eventuality, and then also plans for less likely scenarios, so that my business can prosper in either situation. Instead of overlooking this hidden hand it is important to recognize it is there, and not accept it as a mystical force your business is a slave to, but something you can react to and plan for in order to take your business further.
Re: Obama Wants Social Security for Illegals - I think America's biggest problem right now is clearly the recession, and that should be the main focus as of now.


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