Is a Financial Crisis in the Near Future?
The last few years have shocked everyone, including financial experts. While many things have been predicted, many predictions have also been wrong. For example, many experts believe that the housing market might crash in 2022, but the housing market is just as strong as ever. While many people don’t know what to expect, others believe that a financial crisis is in the near future, but perhaps not this year. This article will discuss whether or not there will be a financial crisis in the future and when to expect it.
What Happens During a Financial Crisis?
To understand whether a financial crisis is coming, you should first understand what happens when there is one. Once a recession begins, it’s difficult to stop and can easily spiral out of control, impacting individuals and businesses. Here are things that may happen during the economic crisis.
- Businesses go bankrupt: When people can’t spend as much money on items they once did, many companies suffer and won’t be able to recover.
- Job losses: When businesses suffer, so do their employees. With fewer jobs needed when people aren’t spending money, many individuals will get laid off, making it more challenging to purchase items from businesses.
- Difficult to find work: As businesses lay people off, they won’t need to make new hires, making it difficult for young people to enter the job market.
- Lower wages: Even if businesses can keep their employees, they will likely do so at lower wages, which employees are forced to accept since no one else is hiring.
- Reduced spending: Reduced spending comes from job losses and the inability to afford everyday products.
- Relocations: When people can no longer afford their homes, they may move to cheaper neighborhoods.
- Increasing debts: People will still have to pay bills during a recession. They may take out more loans to make ends meet.
- Interest rates decrease: When there’s less money spent in the economy, interest rates decrease in hopes more people will start spending money again.
- Fewer lifestyle expenses: People start giving up items that they don’t need during a recession, which can contribute to businesses going bankrupt and job losses.
No Financial Crisis in 2022
Financial crises happen when there are both demand and supply issues. This year, there has been a strong demand for goods and services since consumers have more money to spend than in 2021, when job security was threatened due to the pandemic. Additionally, many people have been able to pay down debt while employment rates have increased due to increased spending.
Businesses are also doing well as consumers start spending again, and many are upgrading their business equipment and machinery or replacing workers with technology. Homebuilders are also back on their feet as supply issues have decreased, and mortgage rates are still meager as the real estate market continues to thrive.
Very few people expect any type of crisis in 2022, but supply issues might trigger a recession next year.
Supply Chain Problems
While people are starting to spend again, supply chain issues could trigger a financial crisis in the near future. Supply chain issues occur when factories shut down and produce fewer products than usual. This has already started in the auto industry, with supply chain shortages impacting the price of vehicles, both new and used. The auto industry has already laid off workers due to supply chain issues affecting the economy. Not only are there fewer products, in this case, vehicles, to purchase, but there are fewer people able to purchase them because they’re out of jobs.
The current supply chain issue isn’t that there are fewer materials; instead, there aren’t enough materials to meet increased demand. Therefore, supply is limiting the growth of companies rather than causing recessions as of right now. This lack of supply isn’t pushing spending down, but it’s forcing businesses to cut back. These cutbacks may discourage buyers, but many will still buy products despite less variety.
Job losses can cause a recession because fewer people will be able to spend money and boost the economy. There are many layoffs of unvaccinated individuals over the age of eighteen, and while many workers will get vaccinated, many may still not. Losing jobs due to vaccine mandates could be disastrous for the economy. Still, the government will likely pull back the regulations before letting unemployment impact the economy at such a devastating level.
Is a Recession Likely?
While experts agree that a recession in 2022 is unlikely, there might be an economic downturn in 2023 and 2024. Soon, short-term interest rates will begin rising again, and the economy will react slowly. The main issue in the near future is inflation, which can trigger a recession. If inflation continues, the government might be too slow to react; the longer they wait, the harder it will be to recover.
Luckily, many experts don’t believe there will be a severe economic downturn over the next few years. Many federal banks want to keep inflation down, and many leaders are restricting economic growth to ensure inflation doesn’t get out of hand. Unfortunately, there is still much speculation, especially with Russia’s war in Ukraine adding doubt among consumers. Additionally, mortgage rates have increased with housing becoming less affordable. The federal government will do everything it can to fit inflation in the next few years to avoid a recession.
While many speculate there might be a financial crisis in the near future, others have faith that the federal government will play its part in keeping inflation down to avoid a severe recession. When there’s a recession, everyone, including investors, individuals, and businesses, suffers as the unemployment rate increases and wages decrease. While the pandemic delivered a major blow to companies and individuals, many people have started recovering in 2022 and are making sound financial decisions, including buying homes and paying off debt. Whether a recession happens in the next few years or not, there are ways you can make your life more recession-proof, including:
- Saving as much as possible
- Cutting back on spending
- Supplementing income
It’s likely a recession is coming, but it should be a mild one, depending on the federal government’s actions regarding inflation and interest rates. When they raise rates, borrowing money and getting a mortgage becomes more complex, but the government hopes that it should slow down the economy enough to avoid a major recession.
Matt Casadona has a Bachelor of Science in Business Administration, with a concentration in Marketing and a minor in Psychology. Matt is passionate about marketing and business strategy and enjoys San Diego life, traveling, and music.