Depression vs Recession: What the Coming Financial Crisis Means for Your Business

AaronVick-Depression vs Recession: What the Coming Financial Crisis Means for Your Business

In June of 2009, the recession in the U.S. was nearly 10%. To put it in perspective, it was at 5% in December of 2007. 

Now with the current economy appearing unsteady in the wake of COVID-19, it seems inevitable that depression or a recession is on the rise. As business owners, you have to be prepared for an economic downturn, always preparing your business for the worst-case scenario.

If you’re unsure of what a depression vs. recession could do for your business, here’s some guidance on how your business could be affected and what you can do to battle the economic storm when it arrives. 

Will There Be Another Depression? 

The last depression was nearly a hundred years ago in 1929. Back then the stock market crashed after a roaring 20s, leaving people jobless throughout the early 1930s. 

The New Deal under Franklin D Roosevelt helped the U.S. economy. The New Deal essentially gave people funding when they didn’t have a job. 

If you look at the history of economic depressions in the U.S., it’s harder to measure and analyze depressions because the 1929 Great Depression is the only to have ever have happened in the last 200 years. 

Given the Great Depression has only occurred once in the last two centuries, it makes it more unlikely that it would happen again. 

When you examine the 1929 Great Depression, the US banks were tightening their monetary policies, which greatly affected depression. However, that kind of policy seems unlikely. 

While an economic depression would be the worst possible scenario, worse than a recession, it’s best to have a startup plan in place in any economic downturn. 

One of the ways you can best prepare your startup is to have a checklist, which you can find on our website. 

Will There Be Another Recession? 

While it seems unlikely that there will be another economic depression, there does seem as if a recession is more likely. 

Recessions have occurred throughout history more than once. Since 1970, there have been multiple recessions. One of the reasons for recessions is the loss of consumer confidence

Specific events trigger an economy into a recession. Some of these events include a stock market crash, high-interest rates, and deregulation. 

The question becomes when a recession does occur, how long will it last? A recession usually occurs after an economic expansion. What follows after an expansion is slower industrial production, capital flows, and unemployment. 

If you look at the history of recessions, you will notice that recessions occur when consumers stop buying. It could be because of a pandemic, which is what you currently see with COVID-19, or the stock market slows, or inflation. 

The 2008 recession led to falling house prices and sales. Another reason for a recession is post-war production slows down. Fewer people are working on producing war materials, as a result, there are fewer jobs. 

Another instance of a recession is deflation. That’s when people stop buying consumer goods because they are waiting for the prices to fall. 

The Savings and Loans Crisis in 1990 caused a recession because banks had questionable loans and illegal activities. 

While there are a lot of reasons a recession can occur, the best thing you can do for your startup or your business is to financially prepare and stay informed on what the economy might look like in the next couple of months. 

What Should You Know About the Current Economy 

A lot of economists are predicting a recession to happen in 2020 because of the current COVID-19 crisis. 

The pandemic is currently causing slower consumer purchases. Fewer people are buying because they are staying indoors because of the pandemic. It’s causing people to lose their jobs. Unemployment could reach 30%.

People are staying at home, which is causing businesses to lose money. 

Hardly anyone is going out to eat, a lot more people are working from home if it’s possible, and people just aren’t’ spending money. 

if you’re wondering if there are other warning signs that a recession is coming, you don’t have to look any further than the production in China. Production in China is the slowest since 2004

If you look beyond China, the U.S. manufacturing activity has also significantly slowed. A slowdown in China and in the U.S. are both warning signs that a recession is imminent given COVID-19 but also that this recession could last beyond the pandemic. 

That’s why you need to know how your business can prepare for this crisis. 

The current economy looks to be heading toward a recession because of the pandemic. Nobody knows how long the pandemic will last or if the economy will boom again like it was before the pandemic. 

However, there are signs that a pending recession is already here and will last longer than the pandemic. If you’re unsure of how to prepare for depression vs. recession, then connect with us here. We can answer all of your questions.  

A lot of businesses and people are fearful of the next recession or depression because of what it could do them or their business. That’s why it’s important to take action and be steps ahead of any economic crisis. 

How Do You Prepare for a Depression vs. Recession?  

The best way to prepare fora depression vs. recession is having a checklist and preparation. It’s checking off everything you need during economic slow periods. That means having additional funding set aside and accumulating resources that your business may need. 

While nobody can know for sure when the next economic depression or recession will occur, you should always be planning for the future. The more prepared you are for an economic crisis, the more prepared your business will be to survive and possibly thrive during that time.