Economic collapse or meltdown is a term typically used to refer to a range of unpleasant economic conditions. For instance, a high rate of unemployment over a period of time, high rate of bankruptcy, and so on.
The aim of this article is to educate citizens on the aspects, causes, signs, and dangers of an economic collapse. We also hope this article helps you prepare better, in case of one.
Types Of Economic Collapse
It would be of great advantage not to think of economic distress as merely bankruptcy and depression because it goes beyond that. There are several types and examples of economic collapse, all of which are dangerous to both US Citizens and the government.
~Inflation is an economic disaster typically characterized by a rise in prices of commodities and services. This can be translated as the decrease in the purchasing power of a currency over a period of time. In the United states for example, what an inflation would look like could be reflected in the increase in the price of gas over a short period of time.
~The unit of money now effectively has less purchasing power than it had in earlier periods due to the increase in prices. This is frequently stated as a percentage. Deflation, on the other hand, contrasts inflation by resulting from a drop in prices and a gain in purchasing power.
~Stock Market Crash
~Another major type of economic distress is a stock market crash. This happens when investors lose faith in the market, and there is a sharp decrease in the values of all the equities that are traded on the stock market. A major disaster of the stock market crash is that it depletes enterprises in an economy ruled by money.
~When stock prices are growing over an extended period of time, price-earnings ratios are higher than typical over the long term, which is good, but then when market players begin using margin debt excessively, crashes happen. These low points happen when faith in the economy is shaken, around presidential elections, when the unemployment is too high, which causes stockholders to start cashing in their shares causing the prices to drop and the market to begin crashing.
~A significant, prolonged decline in economic activity is referred to as a recession. It is often defined as two consecutive quarters of declining gross domestic product (GDP). Consumer demand, employment, and economic output often all fall during recessions.
~According to economists at the National Bureau of Economic Research (NBER), a recession is defined as a downturn of the economy that begins at the height of the expansion that precedes it and ends at the lowest point of the subsequent downturn.
~An economic depression is a condition in which the economy is experiencing financial instability, frequently as a result of a period of unfavorable activity as measured by the GDP rate of the nation. It typically lasts for many years and is substantially worse than a recession, with GDP decreasing significantly.
~The United States experienced the great depression for ten years, with a 25% unemployment rate and a 42% decline in earnings. Although this disaster finally came to and end, as a prepper it is necessary to arm yourself in case of a repetition.
Causes Of Economic Collapse
~Stagflation is a term used to describe a situation in which inflation is rising and the economy is growing, but rather slowly. Policymakers face a problem as a result of this economic predicament because the actions taken to combat the inflationary surge risk pushing unemployment rates to exceptionally high levels. The consequences of stagflation on the economy could extend for years or even decades.
~For instance, from the 1960s to the 1970s, the United States experienced an intense period of stagflation. Economic growth remained flat during that time, while inflation peaked at 13% annually, compared to 20% annually in the UK. Stagflation is typically hard to control once it starts, and governments often have to spend a lot of money to restore balance.
~When the government prints an excessive amount of money and permits inflationary pressure to build up in the economy, it causes hyperinflation. This results is a slow but steady increase in the cost of goods and services.
~In order to manage an economic downturn, governments turn to the creation of surplus money and credit. When a country's government is unable to control price rises and must boost interest rates to slow down the inflationary process, hyperinflation is the result.
~The economy is negatively impacted by price declines more than inflation. Deflation lowers the market value of the goods and services being offered, which motivates consumers to hold off on purchases until costs are get lowered. As demand declines, a recession can result. The Great Depression was made ever worse by trade-war related deflation.
~Asset Bubble Bursts
~An asset bubble that abruptly bursts frequently results in an economic disaster. The many types of assets include stocks and real estate. The amount of money invested in these assets determines how significant the effect is. The impact is worse the more money invested.
~Asset bubbles develop when the price of an asset keeps rising quickly and exceeds its fundamentals. Prices have risen well over their fair values and are no longer reasonable. Speculative activity is one of the causes.
~Speculators are attempting to short-term profit from price hikes. They solely purchase assets in the hopes of eventually reselling them for a profit. Purchases drive up prices even further. After going over its limits, it abruptly drops. That causes alarm among long-term investors as well as speculators. Both households and corporations experienced some loss of wealth in this event.
~The 1953 recession was brought on by a slowdown in the American economy following the Korean War. Similar cuts following World War II triggered the slump of 1945. Should another world war happen again, with the United States being affected, it has the tendency to cause great economic drawbacks.
Signs Of Economic Collapse
The next economic crisis was predicted by modern U.S. economic history to happen between 2019 and 2021, and to their astuteness, a moderate recession did occur in those years and has continued on through 2022.
~The Crisis of Sovereign Debt
~Debts known as sovereign debts are those that a government incurs to fund capital-intensive infrastructure projects. But when the government takes on too much debt and is unable to make principal and interest payments when they are due, the likelihood that it will fail on its current debt obligations and declare bankruptcy rises.
~When there is weak economic development, political unrest, a drought, or when investors lose faith in the government, there will be a sovereign debt crisis. Due to the enormity of sovereign debts, a government default is likely to have an impact on the world economy and have a ripple effect on other allied countries.
~Loss of Currency Value
~When a local currency like the US dollar loses value as a result of a decline in investor confidence, a crisis has occurred. This happens when foreign investors who have made investments in a nation and given the government credit start to lose faith in its capacity to pay its debts or create the promised profits.
~In such circumstances, foreign investors stop making investments into the nation. The action boosts the selling of the borrowing nation's currency on the world market, which devalues the other currency. The country's overseas debts rise as a result of the currency devaluation, decreasing its purchasing power.
~Additionally, job hopping is one of the signs that precedes an economic downfall. This term is being used to refer to falling in and out of multiple jobs in a short time.
~This typically leads to a rising unemployment rate and is usually a precursor to a coming recession. Consumers will gradually lose purchasing power due to high unemployment rates, which will eventually reduce demand. You can be sure to expect economic distress when you notice these signs.
~Increase In Interest Rates
~Interest rates peak at exceptionally high levels during times of economic collapse, which reduces the amount of money available for investors to invest. High interest rates impede economic growth because it is expensive for investors, businesses, and the government to service their existing debt obligations and obtain new loans as a result of the high cost of capital.
~Investors lose faith in a large firm and will be reluctant to trade their money during times of financial difficulty if it proclaims its inability to finance its debt obligations and resorts to selling off its assets to pay creditors.