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The Role of Global Economy

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The global economy is simply the worldwide trading of goods and services, as well as investments and financial transactions, on an enormous scale. There are more than 100 countries in the world today, each with its currency and therefore an international economy of its own that trades with other nations' economies. Money does not have to cross national borders to count as part of a country's economy; it only has to change hands domestically within that country to count.

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Causes of The Great Recession

In 2006, during a period of rapidly rising home prices, widespread confidence in continuing economic growth, and significant growth in consumer spending and mortgage equity withdrawal (more than $600 billion during 2004–2006), a loose credit environment led to an overextension of credit. The combination of easy credit and overconsumption spurred demand for housing that far outstripped supply. This imbalance led to a sharp increase in housing prices and created an asset bubble where almost all assets became priced above their true worth. When home prices stopped rising, homeowners who had been leveraging their homes by refinancing found they were unable to meet their mortgage payments. Many homeowners then defaulted on their mortgages as housing prices declined sharply and financial institutions tightened lending standards. Lenders wrote off these bad loans and sold them or packaged them into securities called mortgage-backed securities (MBS) or collateralized debt obligations (CDO). These toxic MBSs/CDOs were bought by other investors at a deep discount—due to both actual defaults and distressed selling—creating significant losses for those holding them when housing prices fell further. The crisis was exacerbated by fears that highly leveraged financial institutions might fail, preventing repayment of investors who held credit market instruments. Thus began a cycle whereby declining asset values made lenders more hesitant to lend, which resulted in further price declines and forced liquidations of assets held by investors trying to raise cash.

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How Countries Are Impacted By Recessions

Recessions are inevitable. It's a sad truth, but it's true nonetheless. We can't stop them from happening, but we can prepare for their negative impacts before they happen. Specifically, recessions in one country will eventually have an impact on other countries (it's called international trade). So we must understand how to determine who is most vulnerable based on two factors: economic openness and global interconnectedness. The more open a country is and how many connections it has to other countries will largely determine its exposure to external shocks like recessions. An advanced economy with strong trading relationships in other countries will be exposed much more than an emerging market with little ties to other economies. Although not perfect, you can start identifying which nations could suffer most by using some online tools designed specifically for that purpose. And don't forget that being aware of threats is only half of a good strategy; there's still plenty you need to do once you know what those threats are. You'll also want to make sure your portfolio is positioned well as well as strategically diversified so you aren't too exposed during any given period or across specific sectors or industries; stay liquid may be bad advice now, but if things get really bad you'll thank yourself later when cash becomes king again.

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What Consumers Can Do In a Recession

It’s not easy to go out and spend money when you’re worried about losing your job or your house, but you can still find ways to get by without spending much. You should first make sure your finances are in order: Start tracking where your money goes—and try cutting back on some of your expenses. Here are a few things to consider that may help boost your savings during these tough times. Repay Debt To Build Savings - If you have credit card debt, paying off that debt quickly is one of the best decisions you can make for saving money. Look into consolidating your credit card debt at lower interest rates if it would be beneficial for both lowering and reducing monthly payments; there are even some companies that will refinance student loans through private lenders. There are many options available so do yourself a favor and look into them sooner rather than later! Lastly, save up an emergency fund in case life throws another curveball in your direction, and don’t put spending on a credit card. Before making any purchases or signing up for services consider how long you’ll be able to survive without buying said service or product—you may realize that waiting could prove more valuable than instant gratification (unless said instant gratification happens to come from Amazon Prime).After considering these tips and what worked for me I had to take inventory of my finances. The first thing I did was to calculate my total assets such as cash savings, stock holdings/401k plans/RRSPs, etc., next step was calculating my liabilities: Mortgage and consumer debts (auto loan/credit cards), etc.

This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.

© 2022 Ghulam Nabi Memon

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