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RECESSION: AN OVERVIEW
MEANING: A recession is general slowdown in economic activities for a long period. It is just like a business cycle depression. During recession employment, investment power, personal and household incomes of the people decreases and unemployment bankruptcy situation increases in the country. The recession is not confined only within a country but its ill effects also affects adversly the adjourning countries or the countries whose economirs are related with that particular country. Depression is a worst financial crisis situation for a country.
DEFINITION: "Aperiodof generaleconomicdecline; typically defined as a decline inGDPfor two or more consecutivequarters. A recession is typically accompanied by adropin thestock market, an increase inunemployment, and a decline in thehousing market. A recession is generally considered less severe than adepression, and if a recession continues long enough it is often thenclassifiedas a depression. There is no one obvious cause of a recession, although overall blame generally falls on thefederalleadership, often either thePresidenthimself, the head of the FederalReserve, or the entire administration".
INDICATORS OF RECESSION:
- SAVINGS: during recession savings of the private sector increase this happens because of the reason that people don't like to spend more durinfg this situation. Because of decrease in unemployement rate people started to save more and more money and spends a very less amount. Because of increase in saving by private sector they tends to decrease savings of the public sector.
- CONSUMPTION: Because of the fact that the investment power of the people decrease in the recession people fear to purchase. Because of which consumption also tends to fall.
- INVESTMENT: Because of increase in saving and decrease in consumption power investment also decreases. People are not so much confident to invest during recession as they feel that their money may go in wain because of market downfall. So they don't invest or invest a very less amount of their capital during recession.
- GOVERNMENT SPENDING: government spending increases during recession because of the fact that the government have to spend a lot of money in order to increase employment. Government also have to spend a lot of money on mainmtaining stability in infrastructure.
- AGGREGATE DEMAND: Because of the all above facts that consumption power decrease, and even decrease in investment power.these factors leads to decrease in aggregate demand in the economy.
We have so much to discuss on recession. We generally say that recession is bad, but some of wont be knowing what the recession actually mean and what are the ill affects of recession on a common man. We know that recession leads to lower national income and even decrease in nAtional output.
Sevaral illeffects of recession :
- RISE IN UNEMPLOYMENT: although this is a slow process but the unemployment in the country decrease. Because of the crisis in the industries companies have to remove so many employees. It takes a lot of time for employment to increase.
- RISE IN GOVERNMENT BORROWINGS: Recession is a worst situation for the government. Because of recession the revenues from the tax decreases but the investments of government increases. It is forcasted that UK have to borrow 60 billion dollor. This situation may even become worst in upcoming years. Because of these loans higher taxes and higher interst payment situation arises in the future.
- FALL IN SHARE PRICES: Because of recession profitabilty and dividends also lower down. Which leads shares to be even less atrractive. Share prices also falls because of the future expeectation of recession. We should remember that share prices may also gfall because of other reasons it not only depend upon recession.
- Lower down inflation rate: because of recession inflation also slows down.
- Fall in investment: because of fall in the economy growth rate of an economy the investment power also lower down.
HOW RECESSION STARTED:
- Almost in the middle of 2006-2007 the real state business was at the peak in usa. And were arising so many possibilities and miss conceptions. It was estimated that the prices of real estates will rise to a great height in the future.
- Because of these possibilties banks started providing easy access loans to public on a very low rate of interest. Government and banks were anticipating that this money would be recovered very soon.
- But it was only a missconception. Soon interest rates started rising and inverse to that house prices also started lowering down moderately. Now the public was not able to pay back the loan. Which resulted for the banks and government to refinance its money.
- Soon defaults and contraversies started happening. And the prices also didn't rises as the government was expecting.
- This resulted in a big loss to banks and government with a large part of mortgage holding securities. And the banks become insolvent and even put INTERNATIONAL FINANCIAL MARKETS UNDER RISK OF COLLAPSING.
- This panic of uncertainity in the international financial markets quickly resulted in the dectrease of credits capacities.
- Slowly this situation flourished inn the whole world leading to global recession.
Althogh different economies tried their best to protect themselves from these effects but the affect was so extensive that no one was allof fromm the effect. Althogh different countries were affected on different levels and INDIA was the least affected country. But usa was worst affected country
USA RECESSION OUTLOOK( KEY DATA)
- Estimation of contraction in housing infra by 2009.
- Gdp was average to 0.8% in 2008 and it is estiomated that it would be 1.0% in 2009.
- Home prices declined by 15% in 2008 and it is estimated that it would rise by 10% in 2009.
- Operating earning down by 8.4% and it is estimated that it would recover in 2009.
- About 2.5 million people lost their job.
- But employment rate was pushed upto 5.75% in 2008 and featured to rise by 8% in 2009.
- Trade with asian countries adversly affected.
- Political change in usa.
HISTORY OF US RECESSIONS
According to different economists since the year 1854, usa have faced almost b32 cycles of expansions and recession. The average is of 17 months of recession and 38 months of expansion. But from 1980 there are only 8 times when usa faced recession. But majorly these recessions can be classified into four.
- From july 1981 to november 1982. This was of 14 months.
- From july 1990 to march 1991. This was of 8 months.
- From march 2001 to november 2001. This was of 8 months.
- From december 2007 to current. Period is still not estimated.
Current recession is facing fall in private consumption first time since last 20 years. This shows how severe this recession is. Confidence of conusmer very low .so it will take a very long time for the economy of the country to recover from recession.
FEW COUNTRIES WHICH ARE ALSO FACING RECESSION ARE:
- UNITED KINGDOM
- NEW ZEALAND.
India and china is not actually facing the recession but only economic slow down. Australia prohibited itself from the global recession rather it has made an overall growth.
DESCRIPTION OF USA RECESSION
A slight crack may resulted into a big earthquake. These cracks were even visible during recession when in the beginning markets were disruppted. Greatest threat to a person is unemployment. "how he would feed his family. America , which was a hub for the job apportunities is now in inverse situation. American companies are throwing out their employees because of recession. Women employees are downsized women are the worst affected.
Recession have a tendency to affect the core points of business. Usa faces a deep recession in ongoing situation. It clearly stated by the economists that usa is the worst affected by recession. Downfall in the stock m arket has created a situation of panic in the markets. The biggest and strongest lenders who give money to others are facing a cash shortage.
Americans who saved their money have already invested that in their housing, car and other facilities. The usa economy has seen its peak but now its going into a downfall situation.
Now americans are themselves jobless and they are approaching to others countries to search for the jobs. Asians countries are providing more job opportunities as compared to america.
EFFECT OF RECESSION ON ASIAN ECONOMIES
In the beginning many people felt that "decoupling theory" would apply. This theory says that asian economies wont be affected from usa recession. But in actual sense this theory don't work at all. Almost all the asian economies were affected by this. But still sian countries are in a better position as compared with us downturns.
- Usa treated as the reason for all the problems.
- Situation of panic in asian markets and stock exchanges.
- Fall in the share values.
- Continuous fluctuation in the asian stock exchanges.
- Rise of oil prices in asiian markets.
- Many of the adjourning companies which had their alliances with usa companies are closed.
- Exports and imports are turned into mess.
- Before singapore export 20% of theeir total gdp but now this decreases by 11%.
- India is also the affected country from recession.