Is the lurking recession around every corner worldwide here to stay?

Worldwide inflation nowadays is a cause for concern for governments and individuals alike. It is a contagious international phenomenon. Almost every economy is currently stuck in the mud. The US housing market wouldn’t withstand the continuous interest rate rise and foreclosures will rocket high. This downturn in real estate will take the sector long before it takes a turn around to recover. On 26 September 2022, the sterling pound came to almost parity with the US dollar ($1.03 to £1), the lowest level ever against the dollar. The UK currently experiences almost a 100% national debt to GDP ratio and frequent leadership changes, all of which are influenced largely by the Russia-Ukraine conflict. Governments around the globe will embark on bailing their economies while facing a strong dollar. Those bailouts wouldn’t come painlessly. Someone has to pay the price and most likely that “someone” are the citizens, current and future generations, of those countries. This is because the course of action to bail out the economy is either taxes, paid by the current generation, or through borrowings to be paid by future generations.The US Federal Reserve responded by hiking interest rates. In a previous article, I argued that this act of the Fed is driven by the fear of blame being put on them: the Fed’s board members. This fear is rooted in the history of previous financial crises for which the Fed was reprimanded for failure to act on time. It is now widely believed that we are heading into a recession, an era of economic slowdown and higher unemployment levels. Most of what is being discussed stops at this conclusion. In this article, I intend to take the analysis further and make some expectations on what is beyond the immediate. We shouldn’t neglect the recession’s long-run effects on the community.One of the most painful consequences of recession is unemployment. By raising interest rates, the cost of capital increases and renders short what was once a long menu of viable investment opportunities. With these lower investment levels, companies will start to curtail their production, an action that leads to employee layoffs. There will be spiral effects as curbing production in one company causes its suppliers to suffer and opt for laying off many of their employees. High unemployment is a cause for concern in many aspects. Unemployment benefits spending will increase and must be addressed through either higher taxes or cutting another much-needed spending. Cutting other spending leads to layoffs in those areas that are meant to benefit from government spending, thus exacerbating the unemployment problem further. Unemployment has social and political costs. On the part of the social costs, it may lead to higher crime rates or social unrest. Also, it leads to inefficient use of resources as these are redirected from where they are more value-adding to non-productive unemployment benefits. Many countries will experience riots and government changes. The recent change in the UK, the sudden rise of the far-right Democrats in Sweden and the neoliberals far right in Poland are all cases in point. In the US, it is reported that 42,000 employees were laid off in the tech sector alone. Many US companies announced their intention to lay off more employees, while other companies announced hiring freezes.The other expected consequence of the interest rate increase is an economic slowdown. Many US companies warned of economic slowdowns with earnings forecasts cut direly. The main driver behind the gloomy picture is the Russia-Ukraine conflict. The energy prices soaring due to the sanctions imposed on Russia is the driving force of inflation, which means it is supply-side inflation. In such type of inflation, the interest rate is a poor and ineffective monetary tool. Addressing a supply-driven inflation problem through raising interest rates is a wrong prescription for a yet wrong diagnosis. Amidst this international chaos, the Chinese economy seems to be sitting on its ivory tower smiling quietly.Finally, to answer the question of whether the recession is here to stay I would say, yes, unless and until the Russia-Ukraine conflict is put to an end. However, with the current stance of the parties involved in the conflict, a negotiated settlement doesn’t seem to be at the doorstep. ismailfcca@gmail.com