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I am bit curious to understand what it actually means when I read global recession is coming soon. There are some questions which pop in my mind reading such news. Some of them are:

  1. What causes global recession?
  2. How is it possible that all countries' economies go down at the same time. A loss in business for someone means profit for another. So how come all economies start going downward at the same time?
  3. Does it mean that people's consumption capacity has declined or does it mean that the production of goods has declined which is leading to fall in GDP growths of all countries? If its the later case how difficult it is pump up the production capacity for any country to improve the economy instead of stating that global recession has led their economy to go down.
  4. How does the world come out of global recession? If it has happened before many times in history, why haven't the major economies taken lessons from it and only do things which helped them to come out of recession last time?
  5. Last but not least, is there a bigger picture which I am missing that all this global recession can be a planned activity by major economies every few years/decades to achieve something bigger?
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Let me start from the bottom up.

  1. "[...] is there a bigger picture which I am missing that all this global recession can be a planned activity by major economies every few years/decades to achieve something bigger?"

    • No, global recessions usually hurt all economies and though in theory one can come up with an example where someone might benefit from a global recession, arguing that such actors actively caused a global recession for personal gains, is simply a false conspiracy theory. I don't think there is a single example of history where this has happened.

4."How does the world come out of global recession? If it has happened before many times in history, why haven't the major economies taken lessons from it and only do things which helped them to come out of recession last time?"

  • Global economies are complex systems, it is not like you pull a trigger and you're out. People have won Nobel prices for coming up with ideas to come out of a recessions. However, each recession is different and might need different actions to come out of it. However, we have learned a LOT from previous recessions, nowadays, global recessions are less frequent, and a lot less severe than they were in the past.

1-3.

  • A global recession is a complicated phenomena, it might be caused because there are problems in the financial sector, or firms are investing less, or consumers are worried about the future and consuming less. It could be because there is a war in an oil producing country which will increase the production costs for a lot of countries, etc, etc.

  • It is absolutely false that a country's loss is always some other country's profit. Though there are situations where it might be true. For example Mexico losses economic growth because Americans are now substituting Mexican goods for Chinese (this is a fictitious example), but there are far more situations where this is false. Usually the growth of one country fosters the growth of its trading partner countries, and vice versa. In the crisis of 2008, to put a concrete example, most economies were worse off. Higher unemployment everywhere, less goods and services where produced and consumed, lower wages, etc.

If you are interested in the last financial crisis of 2008, I recommend you to watch or read "The big short". It is a well-balanced narrative that explains how the causes of a crisis can be complicated. And how a crisis usually occurs due to multiple mistakes in human actions, but not because someone wanted to cause a crisis. The way out of that crisis turned out to be quite complicated since the crisis looked nothing like previous ones.

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