Why the pessimism of some experts?
While cryptocurrencies remain in a period of accumulation in the lower part of the prolonged range since the highs reached last October, the US economy added around half a million new jobs in March, according to this source. The Dow Jones estimates the industry average around 6% from its all-time high. In addition, the estimation is that the nation’s households were able to save about 2.5 billion extra dollars during the months of the pandemic. What seems like good news, however, comes amid a recessionary mood from Wall Street. Why the pessimism of some experts?
Reasons behind the Pessimism
There are several reasons that lead to a global economic recession. On the one hand, many countries – and their respective economies – had not recovered from the previous recession in 2008 when the housing bubble burst at the time the Covid19 pandemic began. Since then, although there has been approved aid, in countries of the eurozone, for example, there is a cooperative environment to keep economies afloat, this cannot last forever. In this context, a war has started.
Russia’s invasion of Ukraine may seem like a regional affair that concerns only Eastern Europe, but the ramifications reach across the globe. It turns out that after the supply cut in Ukraine’s exports, the price of fuel has skyrocketed in European countries but also the shortage of certain products, such as fertilizers in Peru, for example. It is that in the global economy in which we live, cutting routes with great activity can cause disturbances on the other side of the world due to the increase in the price of goods. This is what is currently happening in Peru, among other complications.
Gary Pzegeo, director of fixed income at CIBC, has said that the market may already be showing signs of a possible recession in the form of the inversion of the yield curve that took place after the start of the conflict.
How does all this Affect Us?
On the one hand, there are already several high-level investors and even ex-workers of the US Federal Reserve who are saying that the economy may find itself in a major recession in 2023. As experts say, history tends to repeat and Lawrence Summers, former secretary of the treasury, explains it by referring to the fact that “during the last 75 years, every time inflation has exceeded 4% and unemployment has gone below 5%, the US economy has ended up in a recession in less than the next two years.
What Can We Do about It?
There is no magic recipe to escape the situation, which goes far beyond local problems. However, a possible way to avoid the devaluation of assets is to exchange them for others that do not suffer the same devaluation, that is, to go from fiat to crypto assets such as Bitcoin or Ethereum. In addition, we can preserve value with the decentralized products offered by DeFi (deposits, staking, etc.).
Although the path is not easy, taking into account the possibility that another major recession could be close, we can take preventive measures. Education in finance is highly recommended to be able to make appropriate decisions about the use of our assets.
By Audy Castaneda