2008 Recession VS 2022 Recession

2008 recession

People from my generation remember the great recession very thoroughly. In 2008, the world experienced arguably the most significant recession ever, and since then, everything has changed. Nothing was the same as before in terms of lifestyles, standards, habits and whatnot. Fast forward to 2022, and we are facing a similar situation today. Gas prices have risen all over the world.

Moreover, stock markets have crashed, and the housing market has skyrocketed. Many experts and financial analysts are calling it a recession, though in an early stage. Since we have a precedent in the form of the 2008 recession, one could make expectations regarding upcoming circumstances and plan accordingly. But, the scenario is a lot different here. It seems that history is not repeating itself in 2022. So, the upcoming 2022 recession looks entirely different from what the world has already seen. 

INFLATION RATES

The most significant difference between the 2008 and expected 2022 recession is the behaviour of inflation. In February 2022, the US inflation rate rose to a four-decade high, up to 8% (7.9, to be precise). Inflation has become the biggest concern for the US economy nowadays. Now, if we compare this rate with the pre-2008 recession, the findings are pretty surprising. In 2008, a period of meagre inflation rates led to the recession resulting in macroeconomic stability. The highest inflation rate recorded in that era was just 3.84% in 2008. Well, this changes things a lot. One thing is clear, the 2022 recession will be different from 2008 and will require distinguished monetary policies. The FED will have to increase the interest rates to control the recession. According to experts, this increase will create an economic downturn and mark the formal inauguration of the 2022 recession.

BLACK SWAN IN HOUSING MARKETS

Till 2008, the housing market prices rose like the subcontinent’s temperature in summers. This encouraged mortgage blocked securities (MBS). People mortgaged their homes in large numbers, hoping the prices would keep increasing. Lenders released credits without income proof, and investors bought these pools, which increased market risk. To everyone’s amazement, a black swan occurred. The prices fell, and people owed more to the banks than the actual worth of their houses. Today, housing prices are rising at a hare’s pace. Now, there can be another black swan, just like in 2008, but one factor negates that. It’s the supply crunch in America. According to a report, America produced approximately 5.8 million homes between 2011 and 2020, compared to 27.1 million between 2001 and 2010. This supply disequilibrium creates a significant difference between the circumstances of the 2008 and 2022 recessions.

DEBT SUSTAINABILITY

Another key difference is the American debt sustainability. The debt on households reached a staggering 100% of 2006 US GDP. This occurred, as previously discussed, due to high mortgaging rates. Current figures stand at around 77%. So, the difference in debt sustainability hints at the nature of the two recessions.

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