It is important to create wealth and be financially prepared for the future. Since the internet’s invention and the ease of traveling and moving goods from one place to another, the world has become a global village. This means that challenges affecting one country in the world might have major impacts on the entire world.
A good and recent example of this is the war that is still ongoing between Russia and Ukraine. Since Russia attacked Ukraine, every country in the world has had to face major financial impacts on its economy. The most significant is the shortage of fuel and natural gas. The impact has led to the price of fuel all over the world to increase, which has further affected the prices of goods and services.
Another reason why the world became a global village is the acceptance of the United States Dollar as the global economy. After the fall of the United Soviet Union at the end of the Cold War, the United States of America became the international currency in the world. Things got more technical after this; when the United States dollar became the international currency, all international transactions between countries and organizations were carried out in USD. This meant that all other countries in the world would have to acquire dollars. Other countries had to back their currency to the United States dollar. This meant that the central banks in all the countries would have dollars equal to the value of the currency in circulation. Initially, the United States of America had a similar accounting formula but used gold reserves instead. Since the dollar backs up other countries’ economies, when the dollar loses value, their economy also loses value.
After some of the events that have happened in the past several decades, people should consider investing their money in other assets. Some of the events that have sparked this idea are the many recessions that have happened over the years.
A recession is an economic situation that affects various aspects of the economy. When a recession happens, a country or the world goes through a period where there is slow economic growth. Low economic growth means that people are not able to increase their wealth while others end up losing their wealth or source of income as businesses struggle to keep up with the hard times. The other effect that people have to struggle through is that the inflation level increases. When inflation increases, local currencies lose their value, and the cost of living increases. All this happens while people are still earning the same amount of money they earned before the beginning of the recession; this means that the same amount of money is able to buy less amount of goods and services than it would buy before the beginning of the recession period. The third impact recession causes are that the level of unemployment increases. As businesses fail, more people lose their jobs and struggle to make a living.
The main thing that people can use to identify when a recession is about to happen is a yield curve. A yield is a tool used in finance. It is a graph that shows the yields that can or will be realized from debts. The graph shows the functions of the debts, such as bonds, and varies according to the time or years remaining to the maturity of the bond. The Yield Curve is mainly a positive graph with the yield on the X-axis and Maturity, which is time on the Y-axis. A positive graph means that the graph’s gradient increases gradually. This means that long-term bonds and debts have greater yields compared to short-term bonds. But before a recession happens, the graph inverts and becomes a negative graph. When this happens, short-term bonds have greater yields compared to long-term bonds.
Inverted Yield Curves can be seen as the barrier to bad news or as a prophecy that has proven to be true time and time again. In the United States of America, their Yield Curve has inverted severally over the years. Some of the most historical events of the inversion of the Yield Curve include the most memorable to finance experts was the 1998 inversion. Back then, this was a new concept, and people did not have a lot of information about this. Two years later, in 2001, the world was surprised as they went through a recession that impacted the majority of the world. Another Yield Curve inversion happened in 2006, which led to the memorable 2008 recession. Some of the impacts of the 2008 recession are still fresh in people’s memories. The previous recession was the odd one out. The yield curve inversion took place in 2019; it only took one year for the recession to hit in 2020. Some of the impacts of the 2022 recession are still being felt worldwide as some people and countries are struggling with unemployment and inflation.
On 30th March 2022, the dreaded Yield Curve inversion happened again. This inversion shows that there is a 100% probability of a recession in the next one or two years. This is the first time there have ever been recessions happening back to back. The difference between this recession and other recessions is that the world is already struggling with high inflation levels. When the recession hits, the recession levels will be too high for people to bear.
This brings as to how people might avoid or cushion themselves from the effects of the recession. The first thing people should know is who will be the most impacted by the recession. The people who will feel the highest impact when recession hits are people who save their money in cash form since their money will lose its value. The second is people who live their lives paycheck after paycheck. The winners will be people who either have real hard assets such as real estate and valuable materials such as gold and silver or people who invest in cryptocurrency. People who have invested in cryptocurrency will have the most to gain since their money will gain value through the recession rather than lose value.
