Recession according to the National Bureau of economic Research (NBER) is “the period of failling economic activity spread across the market, lasting more than a few months”.It is officially defined as the decline in output (real GDP) for two consecutive quarters. In other words recession spells the period when there is less spending, followed by a declining employment rate and less pay. People generally spend mainly out of necessity and other times as a luxury:when they have surplus disposable income. In the presence of recession luxury spending is unavailable.
In any given economy a balanced deflation and inflation rate is required for a healthy economy. The two listed variables also may be used to stimulate or stir a nation(s)’economy towards a desired outcome.
Money like all commodities has a supply chain. The mechanism of this supply is called fractional reserve banking, all central banks which includes the federal reserve: also Federal reserve is no more federal than FEDex is. During a prevalent recession it is not uncommon for the feds to opt for a bail out, sounds good on the surface but every stimulus package, comes with heavy taxes and increased inflation (Quantitative Easing). More money is printed to fill the bail out at a cost that the government pays the Federal Reserve(currency makers), the payment comes in the form of taxes on the citizens.
Deflation occurs a s result of negative inflation rate (i.e falling prices). Deflation is the enemy of a functioning central bank. Demand drives the productions supply which consequently increases profit margin. The lack of demand for a surplus of goods produced drives the economy to the ground. The presence of inflation only devalues a currency, but does not necessarily reduces the employment rate, however deflation always drives the employment down as goods are discounted to save the profit margin, companies lay off workers.
Deflation is essential the precursor to recessions and depressions. Rise in unemployment and stock market prices and depreciation of assets(stocks included). As earlier mentioned that the Federal Reserve monetary system works on creating debt via credit. Deflation makes it virtually impossible to make profit when money is loaned out since the assets are constantly losing value. Recession can be initiated to buy back the major shares of a company from individual stockholders and also acquire property that previously won’t been listed for sale.
Fractional reserve banking is predicated upon inflation, The economy works on credit and loans. Businessmen have learned to use loans and credit lines to create wealth while the majority get in debt by purchasing consumer goods on credit. The typical bank is set up to sell credit and loans, this is their products. Inflation favors this business, high prices drives the demand for credit, interest rate equals profit for banks. This is why during a recession stimulus package are set up and interest rates are lowered to encourage masses to spend and get loans/credits.
Do not feed the machine, if ever you get loans ensure it is used to create wealth and not for consumer goods that are depreciating assets.
Sources
https://www.economicshelp.org/blog/1460/recession/difference-between-recession-and-deflation/
https://www.investopedia.com/ask/answers/111414/what-difference-between-inflation-and-deflation.asp
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