Short Guide to Understand the Causes and Effects of Recession

Recession is one of the important terms which have big impact on global economy. All governments as well as industries all over the world always keeps a keen watch on the global market and also any symptoms of recession. Many people have faces and are still facing various effects of great recession which was started in 2008. They are facing big problems due to 2008 recession in the form of struggling for employment, expanding business, in investment scheme, building schemes, etc.


Recession resulted in collapse of global financial system and global economy has changed its way of working by varying its habits as well as expectations. The origins of the recession come from very few sources and we can track its exact source from proper analysis. But it is difficult ti implement the future strategies to overcome the recession. 

The key to prevent economic crisis due to recession is by analyzing previous mistakes or what went wrong in last decade one must take strong moves against such series of movements which will come in future. I am providing you a short guide which will help you to understand the causes and effects of recession and I hope this will help you to combat with next financial crisis.

2008 Recession

The Financiers

Although most of the leading economists debate on the exact causes of 2008 recession, some of the causes are undeniable. The most obvious cause of recession is the financiers. The reason behind this slowdown is investors became very complacent during the decades due to stable growth and it is followed by WWII by almost forgetting the risk behind high returns investment. In this way they continued their high risky investment with overconfidence.

Credit Ratings Agencies

Investors invested with big confidence by trusting on some of the reputed credit ratings agencies like Moody’s, Standard & Poor’s, etc. which forecasted that this debt will bring high n safety returns. But this debt was provided by same banks that formed these credit agencies. Also these credit agencies made their assessment more generous than its actual conditions.

Chain Reaction

Savings glut in Asian market pushed down global interest rates and many European banks borrowed from American financial institutions for investing in the unsafe as well as risky securities. These faulty loans started defaulting in 2007 when banks confidence on their waiver started lowering and causes establishment of a chain reaction of uncertainty which led to collapse of one of the world’s major bank Lehman brothers. As soon as Lehman brothers fail, fear of uncertainty spread over world’s financial market and most of the banks all over the world started failing due to withdrawal of capital by the investors. This made this crisis spread all over the world.

What to Avoid?

The lesson learnt from the recession is related with how much power should be permitted to these credit ratings agencies as well as regulatory agencies. Majority of the governments all over the world not to allow banks much independence for heir working and influence on national economy. Many people thinks that deregulation of the market was also one of the reason behind this financial crisis. When financial institution was restricted by regulations in 1933 after great recession with the help of Glass- Steagall Act, US experienced tremendous financial stability as well as prosperity. As soon as this act started weakening, financial institutions started working with their own rules and this lead to big recession. In addition to this one must not trust fully on credit ratings agencies or regulatory agencies.

How to Protect yourself?

As we are part of global economy, our activities can possibly result to another recession or economic slowdown. So, I recommend you to invest large portion of your investment into less risky investments scheme like governments bonds, saving scheme, etc. If you have invested in stocks then be sure that you are going to earn good money from it or not. Protect yourself by taking proper steps if you think any big drop in your stock value. As you are responsible consumer in the market, you should borrow money only which you can pay back and so don’t overburden the market. You must take advice of your financial mentor before investing into the market and reduce risk. 

In past few years global economy has experienced major slowdown and stability and also this recession has affected the real estate market on large scale. Many people lose their money due this recession. So safe way is to aim for high rewards and invest smartly in the property. Also you should be aware of the trend in the real estate market and perform detail analysis on real estate market. Before investing in to the real estate market and to have safety way through this one must think of following points:

·         Property Location
·         Principle of Progression
·         House with broad appeal

The great recession in 2008 was caused by various factors and only few of them are found out by the experts and the still the list is incomplete. I hope that all governments and all market players all over the world learnt big lesson after experiencing this recession or financial crisis. They will take proper efforts to prevent such events in future. As you are also a key player of this global economy, you should take proper steps to boost the economy by investing smartly.

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