Special Episode: Recession 2023 Explained | Global recession 2023 coming | Recession Explained
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- čas přidán 19. 07. 2024
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All the experts from World Bank to Raghuram Rajan are saying that a recession coming is possible. Recession news has worried everyone but this begs the question - what is a recession? In this video, I tried to explain the recession in simple terms. Recession explained in simple terms is to make you understand economic fundamentals easily and explain to other people as well.
Here’s the analogy I used to tell you what is recession - If there is a food truck owner who wants to earn profits from their food business. The business owners aim to grow their business and possibly buy another food truck by using the rewards from the current business. In a normal economic situation, this will surely happen. This happens because of regular, irregular, and new customers coming to the truck daily. The efficiency of the food truck will also increase. The food truck’s quality of food will also improve. If there are 200 people paying 200 rupees, then the food truck will be generating a profit of ₹40,000 every day.
But this isn’t enough amount to buy another food truck. So, the food truck owner goes to a bank to raise some loans to buy another food truck. This is how our economy works - we can replace the food truck with any company like Amazon, Google, FB, and so on. Under extraordinary situations like war, famine, pandemic, or a banking system collapse, these institutions like governments, companies, and food trucks don’t grow. Because of this their overall production and income drop. This is because people would want to hoard money instead of spending it since there is too much fear.
The history of recessions tells us that - the last 3 global recessions were in 1990, 2008, and 2020. The 1990 recession was because of the gulf war, the 2008 recession was because of the housing crisis and subsequent banking crisis, and the 2020 recession was because of the novel covid-19 pandemic. In 2023, we are looking at all of these 3 things together. All these 3 things are impacting the global markets together right now.
In March 2020, the pandemic kicked in and many people lost their jobs. In the US, the unemployment rate shot up to 13% in April, May, and June of 2020. Right now the unemployment rate is 3-4%. The government of the US deposited money into people’s bank accounts to keep the economy going. Because of this, the food truck owners didn’t have to shut their businesses. And subsequently the people around also had money to buy more stuff. Because of this businesses prospered and hired more people, making the economy function again properly.
The excess money pumped into the system made the prices rise. But around the same time, Russia Ukraine war started. The two aspects of it are the oil coming out of Russia and food grains coming out of Ukraine. Because of this, the production and operating costs of the food truck owner increased. Because of this the prices of the end product that is meals also increased - causing inflation.
But Governments intervened right away to control inflation by raising interest rates. It was done to minimize the effect of inflation on the poorest of the poor in the country. But this led to the third trigger - Banking Crisis. The interest rate increase resulted in higher cost of loans (increased EMIs) for consumers and businesses alike - which led to stopping them from spending extra money on goods they didn’t need. The interest rate in the US has increased in the US by 400 basis points in the last year. Customers take out money from the banks and invest it in government bonds - taking money out of the economy. This will cause a credit crunch. I’ve explained way forward and the takeaways from this entire situation at the end of this video.
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Chapters
0:00 - Intro
1:08 - Pointers
1:23 - What is Recession
3:54 - History of Recession
4:42 - Pandemic
6:19 - War
8:28 - Banking Crisis
11:10 - Way Forward & Takeaways
13:52 - Outro - Zábava
Study materials for you to understand the topic closely:
1) Highly recommended watch (90 minutes documentary featuring US president, JP Morgan CEO, Citi Bank CEO, and other prominent business leaders): What actually happened in the 2008 Financial crisis and how did the business leaders solve the problems: czcams.com/video/QozGSS7QY_U/video.html
2) Tools used by Fed to influence Economy: www.investopedia.com/articles/economics/08/monetary-policy-recession.asp
3) Deep dive into Monetary policy: www.cfainstitute.org/en/membership/professional-development/refresher-readings/monetary-fiscal-policy#
4) Why bank failures raise the odds of recession: www.wsj.com/articles/bank-failures-like-earlier-shocks-raise-odds-of-recession-beb1e376
5) How wars could lead to recession: www.britannica.com/topic/defense-economics/War-finance-when-deterrence-fails
Such an interesting video. Really love all of your videos. keep posting such content, these are very helpful for us as management students!
Sir the way you explain its Amazing...Thank you so much for sharing all important such knowledgeable stuff
That background in the video! Classic Pavan. Loving your content.
1:39 - Bull Market
3:39 - Bear Market
This is a great explanation, Pavan.
Wish you all the best with your CZcams channel growth 🎉🎉
🙌🏻 Really helpful. Thanks for the video ❤
You articulated very well, I became a big fan of your talks.
Great explanation.... you are going good. Thanks!
Pavan love watching your videos…must say great content simple and to the point .Do continue with more such videos ..!!
Great insights as usual. ~Thanks, Sarthak.
Really helpful!!
Great Analysis, Thanks for sharing.
Amazing explanation, Pavan. Really appreciate the way you explain complex concepts with simple examples, in this video - the food truck.
Thanks Atul!
Nice thank you
Great Analysis Pawan Sir, I work in the IT Consulting myself, learned so much so you since the day i Subscribed your Channel.
Kudos to your Effort sir.
You are in big4 ?
Hi Pavan,
Found this video very nicely curated.
Wanted to ask if you can also publish your content on Spotify as Podcasts, as those are sometimes more convenient to listen.
Good one sir
Hi Pavan, can you please explain the reason for increasing interest rates? In my view, govts. should have decreased the rates. Here’s how - The war is causing hike in raw materials and oil prices which in turn are causing increase in product prices. Therefore, lowering down rates would have helped reducing EMIs and in turn helped avoiding product price hikes due to earlier mentioned factors, which means reducing inflation. So then why dis govts. Increased the rates?
True
Insightful!.
Do you also conduct any paid sessions to explain such finance and economic concepts?
10:13 minutes, how higher interest rate lead to customer loosing confidence in bank? Pls elaborate.
S subbaraju congratulations sir please thanks
Hello Pavan, will it viable to go for MBA during this fall?
I think Indian banking sector is very well regulated.......then why is FED too much irresponsible that led to collapse of 3 banks...?
Is FED actually irresponsible? Why couldn't FED should have anticipated potential collapse of these banks USA ?
FED did not do its job. And that is the reason why Joe Biden is proposing for tighter regulations.
After the 2008 crisis, the regulators in the US did become tighter with their capital requirements. But, as Joe Biden very clearly mentioned - it was the last government (Trump) that relaxed some of these regulatory requirements. SVB CEO lobbied quite heavily for these relaxations.
But nothing happened until last month!
So everybody was happy.
But, the trigger was the sector - Startup funding winter. And then it was contagious.
Do you think these collapses and stocks going down would have a very long term impact on world economy
Hi, Where are the study materials you said you will be attaching ?
Will add soon. in a few hours:)
@@PavanSathiraju great, thanks a lot. I love the way you present case studies. Wish they are a bit longer and in-depth :)
@@arshiyatriestobuildhabitswill start doing that very soon:)
I love watching your videos. However I am amazed seeing that you consider Raghuram Rajan's opinion to be valid or worthy enough.
Could you please enable the download option 🙏
I am not able to do it for this video. There is a copy right issue on the background music..