There are sufficient indications that the World may be hurtling towards a huge economic crisis in late 2022-23… Possibly bigger than the 2008 financial crisis.
The US is heading – or is already in – a recession, depending on how your favourite media outlet interprets the data. Europe is preparing for reduced Gas imports from Russia through the NordStream 1 pipeline, potentially resulting in a tough winter – both literally and economically. China’s economic growth has slowed down as a result of its Zero Covid policy. With such major economies preparing for economic slowdown, emerging economies including India cannot be insulated from the resulting shocks. Pakistan and Sri Lanka are already visible case studies on what can happen when you have a debt-laden, weak economy.
India may be relatively less affected compared to our neighbours and many other Emerging economies, but there could still be enormous pain.
We can’t assume life as usual. We may encounter new restrictions.
Just like how the Covid-time lockdown was something we encountered for the first time in our lives, new things like rationing of Electricity, Petrol, buying limits on physical Gold, are all potential possibilities.
Pakistan had asked it’s citizens recently to drink less tea, to reduce tea import bill!
Sri Lanka recently declared a 4-day work week and subsequent lockdowns, not to tackle covid, but to ration fuel usage.
India’s import bill is dominated by Oil and Gold. If the Ukraine War persists and US is unable to convince Iran back to the nuclear deal, Oil prices could skyrocket. This can cause rapid depletion of India’s dollar reserves, forcing drastic measures as above.
The last time the World faced the financial crisis in 2008, they solved it by printing more money. They did it again in 2020. The current crisis of inflation is caused as much by the indiscriminate money printing as much as the Ukraine War. So printing more money again in 2023 will only exacerbate the problems further. If that’s not an option anymore, then a recession in the US is the next best option – economically speaking. Raising interest rates and reducing demand will slow global economic Growth but that may be the only economic option to control the crisis.
The alternative is high food prices and other necessities caused by inflation that makes life harder for the poor masses. This will only result in huge social unrest.
There are no ideal choices ahead. There’s likely a world of pain waiting ahead in the next 2 years. But in the long term this too will pass.
Disclaimer: Like with all such economic predictions, this may not come to pass at all. But when it comes to personal finance, it is better to be prepared for the worst outcome.
A recession in the US may be the least worst economic solution to the unfolding inflation crisis.
This may have repercussions for India as well.
Even if the worst economic forecasts don’t come to pass, when it comes to personal finance, it is better to be prepared for the worst.
Personal finance lessons to take from history:
- Don’t take your job for granted
- Save aggressively & Reduce Debt
- Strengthen your financial position
- Invest with a plan for the long term
To take stock of your personal finance situation, this excel tracker below is a good place to start.
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