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Have you ever found yourself scrolling through financial blogs or news headlines and stumble upon the term “World economic crisis” and wondered ‘How does this affect me?”
The world’s economic vehicle has taken us for a wide ride lately. So, it’s time we discuss why it matters to everyone.
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As of 2020, the world found itself in economic downtimes during the pandemic. The spread of the virus disrupted the world’s social and economic order. The virus was causing a tragedic loss of lives, and the lockdown needed to fight it caused an economic meltdown.
In addition to the Covid-19 economic crisis, different central banks worldwide hiked interest rates in response to inflation. So, why should you care as an African American? Read on to find out.
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What Is an Economic Crisis?
The global economic crisis is a time of extreme pressure and stress in the banking system and financial markets. As a result, businesses find it difficult to meet their financial obligations, and financial institutions can lack convertible assets or enough cash to meet immediate needs and fund projects.
Investors could lose confidence in the value of their assets. Also, the assets and income of consumers can become compromised. This makes it hard for them to repay their debts. Here are books on Amazon to help you learn more about the world economic crisis.
Why Should African Americans Be Concerned About Economic Crisis?
The negative effects of the world economic crisis can find its way into our daily lives. Here are the key reasons African Americans Should be concerned about the world economic crisis:
Negative Effect on Finances
During a world economic crisis, inflation rates are usually high. This means that the price of goods and services will increase over time. For African American families, this translates to increased prices for basic life essentials, such as groceries, fuel, housing, and healthcare.
When this happens, your buying power is affected since your money doesn’t scratch far. For black Americans with investments or retirement savings tied to the stock market, economic crises can reduce their portfolio values.
Job Security Isn’t Certain
Global economic crisis often leads to job losses, reduced working hours, and layoffs. During this period, companies and organizations streamline operations to remain in business. A case in point is the COVID-19 pandemic that happened in 2020.
Even if your job seems secure right now, economic crises can affect your employer’s profit. When this happens, you get laid off or your salary will be slashed.
Standard of Living Takes a Hit
When the global economy is unstable, your overall well-being and comfort can be impacted negatively. For example, economic issues usually lead to budget cuts in many sectors, including education. When schools don’t get proper funding, the quality of education and available resources will drop.
Global economic issues can also affect healthcare systems, making it difficult for black Americans to access medical care. Additionally, it can affect the real estate market. If that happens, buying homes will be expensive and rent prices will also increase.
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What Is the Cause of the World Economic Crisis?
Economic crises have multiple causes. Basically, a financial or economic crisis can happen if assets or institutions are overvalued and can be worsened by herd-like or irrational investor behavior. For instance, rapid selloffs can lead to lower asset prices.
This can prompt people to dump assets or withdraw big savings when a bank failure is rumored. Contributing factors to the economic crisis include:
Excessive Risk Taking
In the years leading up to the global financial crisis, economic conditions were perfect in the US and countries worldwide. The rate of unemployment and inflation were low, and economic growth was stable.
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In this economic condition, house values have increased significantly. The prediction that the cost will continue to soar higher led many people to borrow recklessly to invest in real estate. A good number of such borrowings were performed by people seeking to make temporary profits offline their investments by simply flipping the houses.
Policy and Regulatory Errors
When the regulations of MBS products and subprime lending are too relaxed, financial issues can set in. There’s a need for adequate regulation of the institutions that create and sell the complex opaque MBS to investors.
Before the world economic crisis of 2008, many people were given large loans that they were unlikely to be able to repay. Frauds like over-promising investors on the safety of the MBS products they were buying and overstating investors’ income.
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War
In many situations, war can cause inflation. It can cause people to lose their savings, increase uncertainty, and lack confidence in the economy and financial system.
For example, during the Second World War, the US experienced a high inflation rate because the economy was close to full capacity. The shortage of workers and the high level of government spending saw inflationary pressures.
If all these factors aren’t checked, an economy can go into depression or recession. However, remember that even when there are plans to avert economic crises, they can still occur, deepen, or accelerate.
You can get one or two books on Amazon to learn more about the impact of war on the global economy.
The Impact of the Economic Crisis
Between 2008 and 2009, the world witnessed the worst financial and economic crisis since the Great Depression of the 1930s. This global economic downturn affected economic growth globally and caused setbacks in the progress towards reaching the Millennium Development Goals.
Loss of income, increased unemployment, and vulnerability are a few common dominant impacts of the global economic crisis. During periods of economic problems, families will resolve to adopt survival strategies, such as cutting down on family spending.
However, these survival strategies can negatively impact education, nutrition, and health, leading to lifelong deficits, especially for children. Additionally, the global economic crisis perpetuates the intergenerational transmission of poverty.
World economic crisis is something that African Americans should care about as its effects can hit so badly on people who aren’t prepared for it. You can learn more about it by following financial institutes. There are so many books on Amazon that help you learn about the financial crisis and how to prepare yourself.
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