How Close Are We to Total Economic Collapse?


Economic Collapse

2020 will remain an unforgettable year for everyone, not just because of the coronavirus outbreak that took the lives of friends and loved ones but also because of the economic crisis that ensued. Two years after the COVID outbreak, the world economy has undergone rapid recovery. However, some people fear that we may be approaching another total economic collapse in 2022? How true is this? And how close are we?

Based on current world economic growth and performance, it is safe to say that we aren’t close to a total economic collapse. In fact, provided things remain as it is, 2022 might be a great year for the world economy.

If your finances or business were affected by the economic crisis of 2020, you would surely not want to experience such an ordeal again. And if at all we experience another economic downturn, you will want to ensure that you are well prepared this time. Read on to find out how close we were to a total economic collapse in 2020.

Worst Investments during Inflation

How Close Are We to Total Economic Collapse?

Before we go into the thick of things, why don’t we understand what an economic collapse is first?

We often hear of “economic collapse”, but do you know what it really means? If not, here is a terse explanation.

Economic collapse is a period of national or regional economic failure where the economy is in distress for a long period, ranging from a few years to many decades. During periods of economic distress, a country is characterized by social tumult, social unrest, bankruptcies, low trade volumes, currency volatility, and breakdown of law and order.

Examples of Economic Collapse:

There are multiple examples of national-level economic collapse throughout history. Each economic collapse was caused by different factors and had different effects, although some share triggers as with the Great Depression. Often, these factors are combined with many of the macroeconomic factors that happen in contractions and recessions like hyperinflation, stagflation, stock market crashes, prolonged bear markets, including unbalanced interest and inflation rates.

Of course, economic collapses can happen from extraordinary factors such as bad government policies, a depressed global market, or the old standbys of wars, famines, plague, and death.

Economic Collapse in The United States of America:

In the U.S., the 1930s Great Depression is a good example of an economic collapse, ranking at both the greatest in terms of damages and the longest from which to recover. The 1929 stock market crash was an important stimulant for the collapse, but the issues were aggravated by policy reactions and systematic weaknesses.

The multi-year economic collapse of the United States economy was followed by sweeping regulatory improvements affecting the investment and banking industries, including the Security Exchange Act of 1934. Many economists have blamed the economic slump that started in the 1920s on a lack of government participation in the economy and financial markets

International Economic Collapse:

Of course, there are also many international economic collapses that have taken place throughout history. The Soviet Union, Latin America, Greece, and Argentina are all victims of economic collapse. In the case of Greece and Argentina, both economic collapses resulted from severe problems with sovereign debt. In both Greece and Argentina, sovereign debt collapses resulted in consumer riots, a fall in the currency, international bailout support, and a revamp of the government.

The famous 2020 COVID-19 pandemic, which was prevalent worldwide, starting in China, then Europe before finding its way to America, is another typical example of an external shock resulting in a global economic collapse.

Causes of Economic Collapse:

Like other economic issues, economic collapse is a result of some factors. I have highlighted a few factors responsible for an economic collapse below.

  1. Hyperinflation

Hyperinflation happens when the government allows inflationary pressure to accumulate in the economy by printing too much money, which results in a gradual rise in the prices of goods and services. Governments start creating excess money and credit with the aim of managing an economic decline. Hyperinflation takes place when the government loses control of the price increases and raises the interest rates to curb the rising inflation.

  1. Stagflation

Stagflation is a situation in which the economy is developing at a snail’s pace while simultaneously experiencing increased inflation rates. Such an economic situation causes issues among policymakers since the measures adopted to reduce the rise in inflation may propel unemployment levels to insanely high levels. Stagflation and its effects on the economy may remain for several years or decades.

For instance, the United States experienced stagflation from the 1960s to the 1970s. During this period, economic growth was at a standstill, and inflation peaked at 13% per annum, while the inflation rate in the U.K. was at 20% per annum. As soon as stagflation occurs, it is usually hard to manage, and governments must spend a huge amount of money to pacify the economy.

  1. Stock market crash

A stock market crash happens when there is a loss of investors’ trust in the market and there is a huge fall in stock prices across different stock trading in the stock market. When a stock market crash takes place, it creates a bear market (when prices plummet 20% or more from their highs to hit new lows), resulting in the loss of business capital.

Sectors That Benefit From Inflation

Is there an Economic Collapse on the Horizon?

The last economic downturn happened during the peak of the Coronavirus pandemic. Its impact left economies and businesses counting the costs as governments struggled with new lockdown measures to curb the rapid spread of the virus. However, this was around two years ago. Today, we all want to know if we should prepare for another economic collapse this year.

Provided the Russian invasion in Ukraine doesn’t escalate, and we don’t see a repeat of the novel coronavirus outbreak that brought the world economy to a standstill, the chances of an economic collapse are low. In fact, today, we aren’t anything close to a total economic collapse, and we can attribute that fact to the projected global output and growth.

Based on statistics, the global output is projected to grow by 4.4% in 2022 and 3.8% in 2023, according to the International Monetary Fund.

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