as we understand that every object has a correct price on its own, the fundamental task is to find out how much correction the price can encounter in its change, well this change in its price valuation is called recession.
we all must have gone through this sentence once in our lifetime or will be going through it “the only thing that remains constant is CHANGE.” from there we can identify that anything that is related to its price also has an inheritance of change in its own way, as the word recession means the change in its pricing or more precisely migrating to its intrinsic price or valuation.
in this article, we will discuss the change in an individual’s life and a change in an organization, basically what are the universal fundamentals of money and credit, and how they have an impact on us.
THE TRIGGERING POINT OF RECESSION-
well, every single entity is it – individual people or any organization or government deals with these basic financial realities of money and credit. all the entity that have money come in the form of revenue and goes out in the form of expense, when resulting this money makes up their net income. if an entity brings in more than it spends, it has a profit that causes its savings to go up. if it spends more than it earns then the savings goes down and in order to make up the difference the entity borrows money(CREDIT).
in order to understand whether we are living in a recession or not is to understand the points of debts and credit cycles. for example, one entity’s debts is another entity’s assets and an entity that defaults and reduces other entities’ asset, which require them to cut their spending. this continuous process produces self-reinforcing downward debt and economic contraction.
this generates the junction of contraction and further probabilistic changes in things or assets over time due to which the inflation price of any asset or thing comes towards it in a downward way towards its intrinsic valuation.
the fundamental concept one must understand is that we make transactions on behalf of paper called ( money), one also must understand that unlike us the central banks( commonly the RBI for India) do not have any fixed amount of money and credit in existence, since money and credit can easily be created by central banks of all nations.
for the government in order to buy something unlike us they just print money and just move on and as a result, they just end up printing lots of money to buy or to cover their debts and losses, and due to too much printing of money, the prices of products inflate ( since the buying power gets decreasing, also since the wages does not increases) than to its original pricing.
over a period of 8-10 years, the inflated price touches its peak and even the government and the central banks can’t print money further this process is called (QT- Quantitative Tightening) once that happens the economic system gets contracted ( since they spend less and earn less)- be it for individual or an organization or any government.
this dynamic system can be magnified if one is focusing on the surrounding where the individual will observe whether the effects of the recession are there or not. if a person generally observes that – their debts are not getting paid with respect to their cash flow then it surely generates the position for oneself under financial trouble. and when the same phenomenon occurs with an organization or government, then there comes the time for correcting the valuation of circumstances called recession.
[…] the federal reserve wants to slow down the economy and in order to do that it has to increase the rates of interest so that people demand less and spend less also it increases the quantitative tightening( which can also be the cause for the upcoming debt cycle). […]
[…] the study of economics represents the philosophy of the world under what factors it is working and how can it change, simply observing the survey of macro and micro conditions the factor of correction of the market can be counted under play. […]
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