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Nuriel Rubini predicts a long and ugly severe economic crisis in 2023. The world will suffer a recession that could last throughout the year. Rubini, known as "Dr. Catastrophe" because his predictions are often extreme but accurate, is one of the investors who predicted the 2008 crisis when the mortgage market collapsed completely in the United States.
But you might wonder, how does this affect people and businesses? Economic crises are usually caused by a combination of factors such as problems in the financial market or a slowdown in economic growth. The effects of an economic crisis can be devastating for people and businesses, as they can cause: increased unemployment, a fall in stock prices, and a decrease in the purchasing power of the currency.
One of the ways economic crises affect people is through unemployment. During a crisis, companies often cut expenses and lay off workers to reduce costs. This increases unemployment and can have a significant impact on families who depend on these incomes. Businesses also suffer during economic crises, as they may be forced to...
Businesses closing their doors due to decreased demand and the resulting financial problems can have a significant impact on the economy, as companies are a major driver of economic growth and overall employment. Economic crises are difficult events that can have a lasting impact on individuals and businesses.
Governments and central banks often intervene to try to stabilize the economy and help overcome the effects of the crisis; however, it can take a long time to fully recover, and some individuals and businesses may never recover. But why will there be an economic crisis in 2023? The main reason is that during the 2008 economic crisis, central banks lowered interest rates to almost zero, even reaching negative levels at times.
These very low interest rates led businesses and consumers to take out loans to invest, thus reactivating the economy. So, the main idea was essentially for central banks to print money in large quantities so that consumers would spend again. This led to overall market benefits, as consumers once again had money to spend.
Furthermore, markets needed to grow to meet the needs and demands of the economy. Consumers, and that's where large companies come in, and consumers suddenly start investing in them. Around 2018, the cryptocurrency movement began to gain momentum, causing the prices of many products to rise. Consumers wanted to buy everything at once, and the economy was booming.
So, to slow it down a bit, central banks began increasing interest rates to reduce the amount of money in circulation. Many consumers, having to pay more in interest on their loans, wouldn't take them out. This caused the economy to slow down somewhat and remain relatively healthy. However, in 2020, the pandemic hit, causing the economy to slow down again.
No one wanted to borrow money from banks because of the uncertainty surrounding the future. Furthermore, with almost 90% of businesses closed due to lockdowns, consumers couldn't spend their money, leading to a severe slowdown in the global economy. Practically only essential businesses, such as healthcare, food, and telecommunications, could operate.
To address this problem, many governments took action. And together with the Central Bank, they decided to lower interest rates almost to zero again and simultaneously print more money than was already in circulation, seeking to accelerate the economy, which had been almost completely stalled due to the COVID-19 pandemic.
This caused technology companies like Facebook, Twitter, and Amazon to grow exponentially and, likewise, to have to hire much more staff to meet the needs of consumers who were now shopping from home. All these actions worked perfectly to prevent the global economy from collapsing during the pandemic.
However, injecting so much money into the global economy would have consequences. During the pandemic, many essential products, such as food, increased in price because many factories stopped operations due to government restrictions. Many ports even closed, causing a sudden price increase for essential goods.
And as if all this weren't enough, war broke out between Russia and Ukraine. Consequently, the West imposed a series of sanctions on Russia to disrupt its oil and gas exports, causing a tremendous energy crisis worldwide and driving up prices. Fuel and other goods are rising because Russia is the world's third-largest oil producer, behind the United States and Saudi Arabia.
This doesn't even include all petroleum derivatives, making Russia the world's largest exporter. Europe depends on Russia for almost 60% of its oil, and sells 20% to China. Furthermore, Russia has the world's largest oil reserves, not to mention the gas it sells to the European Union (40%). How does Russia respond to these Western sanctions?
It simply threatens the West with permanently cutting off oil and gas supplies to the European Union, which depends primarily on Russia. This causes another increase in fuel prices, which in turn leads to an increase in food transportation costs. Finally, these factors affect food, which is the foundation of all regions.
That said, inflation in every region has skyrocketed, causing everything to rise exponentially. I imagine you've noticed that a year ago, the groceries you could buy for your household with $100 cost much more than today. You ca n't buy even half of what you used to, mainly due to inflation. But what exacerbates this situation is the rise in interest rates, which in some regions of the world have tripled, meaning they've increased by more than 200%.
Everything is more expensive, and money doesn't stretch far enough. At the same time, the central bank's interest rate hikes reduce the money in circulation, leaving consumers with much less to spend. This leads companies to stop investing and instead seek to reduce staff through mass layoffs, trying to improve their own finances.
We've already seen this with Meta, which laid off nearly 11,000 workers, and Amazon, which laid off around 18,000. That's why the global economy needs a slowdown; it needs a recession to put an end to inflation and the high prices of all products. So, what can we do to avoid suffering so much during this economic recession?
The first is to stop spending on unnecessary things and avoid the phrase "I'll buy it because I deserve it." The second is to avoid taking out any more loans, as interest rates are very high. High interest rates will continue to rise, or at least remain high throughout 2023. Thirdly, it's crucial to pay off all debts as soon as possible, especially if you have loans with variable interest rates.
But hey, not everything is bad during economic recessions. The good thing is that since there isn't enough money to spend, everything tends to go down in price. For example, real estate is one of the sectors most affected during these times, and house prices tend to drop, so you can find very attractive deals on the market.
This is especially useful if you have some extra money and don't know what to do with it. Finally, if you liked my video or found it helpful, please subscribe to my YouTube channel and give it a like.
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