reasons for great recession
TRANSCRIPT
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THE GREAT RECESSION
2008 - 2009
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WHAT IS RECESSION A Recession is a contraction phase of the business cycle. According to National Bureau of Economic Research (NBER)
significant decline in economic activity lasting more than a fewmonths, which is normally visible in real GDP, real income,employment, industrial production, and wholesale-retail sales.
Decline in a country's gross domestic product (GDP) growth for two ormore consecutive quarters of a year .
In economics, a recession is a general slowdown in economic
activity over a sustained period of time, or a business cycle
contraction. Production as measured by Gross Domestic Product (GDP),
employment, investment spending, capacity utilization, householdincomes and business profits all fall during recessions.
http://en.wikipedia.org/wiki/Business_cyclehttp://en.wikipedia.org/wiki/Business_cycle -
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WHAT CAUSES RECESSION Primarily caused by the actions taken to control the money
supply in the economy. When the consumer faces foreclosure and the banker comesknocking for his pound of flesh.
Companies and whole countries go bankrupt for want of liquidfunds and cash flow for even daily requirements.
Currency crisis
Energy crisis Under consumption Overproduction Financial crisis Price of Fuels
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EFFECTS OF RECESSION
Higher levels of
unemployment Decline in housing prices
Decline in the stock
market
Business expansion plansbeing put on hold
Bankruptcies
Credit crunches
Foreclosures
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What contributed
recession United States housing market correction (a consequence of United States
housing bubbles) and sub prime mortgage crisis.
US economy accounts for 30 per cent of the world's GDP. The value of houses dropping and the pension savings decimated on the
stock market. Protracted credit crisis and "rampant inflation in commodities such as oil,
food and steel." The 6.4% decline in spending during Q3 on non-durable goods, like
clothing and food, was the largest since 1950.
Increasing inflation led to higher interest rate. As a result borrowing loans and consumer spending stopped. People having low credit profile became defaulters. Easy liquidity started vanishing.
US shares fell into the red from their early gains after the NBERannouncement.
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SUBPRIME CRISIS
Involves financial institutions providing credit toborrowers who do not meet prime underwritingguidelines.
Sub prime borrowers have a heightened perceivedrisk of default.
such as those who have a history of loandelinquency or default, those with a recordedbankruptcy, or those with limited debt experience.
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UNITED STATES ECONOMIC
RECESSION HISTORY
The United States has
encountered 32 cycles of
expansions and contractions,with an average of 17 months of
contraction and 38 months of
expansion.
The US economy has suffered 10
recessions since the end ofWorld War II, the last of which
was in March 1991.
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Crisis in the U.S. The defaults on sub-prime mortgages (home loan defaults)
Sub-prime is a high risk debt offered to people with poor
credit worthiness or unstable incomes. Major Banks have landed in trouble after people could not pay
back loans. The housing market soared on the back of easy availability of
loans. The realty sector boomed but could not sustain the momentum for
long, and it collapsed under of crippling loan defaults. Foreclosures spread like wildfire putting the US economy on shaky
ground. This coupled with rising oil prices slowed down the growth of the
economy.
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FACTORS CAUSING ECONOMY TO
FALL INTO RECESSION
Rising inflationary environment. People tend to cut out leisure spending, reduce overall
spending and begin to save more. Individuals and businesses curtail expenditures in an effort to
trim costs. causing GDP to decline.
Layoffs and Unemployment.
Huge losses in financial sector. Shrinking domestic demand and falling asset prices. Relaxed policies in lending practices making it extremely easy
to borrow money during inflationary environment resulted inunsustainable economic activity and the economy coming to anear halt.
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NET CHANGE IN U.S. JOBS
Thousands
-800
-600
-400
-200
0
200
400
600
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
June 2005 December 2008
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INDUSTRIAL PRODUCTION
100
102
104
106
108
110
112
114
Jan-07
Feb
-07
Mar
-07
Apr
-07
May
-07
Jun-07
Jul-07
Aug
-07
Sep
-07
Oct
-07
Nov
-07
Dec
-07
Jan-08
Feb
-08
Mar
-08
Apr
-08
May
-08
Jun-08
Jul-08
Aug
-08
Sep
-08
Oct
-08
Nov
-08
January 2007 - November 2008
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LIST OF BANKRUPT
AIRLINES
Dec 26, 2007 - Maxjet Airways files
March 31, 2008 - Aloha Airlines files anddiscontinues passengertransporting operations
April 03, 2008 - ATA Airlines files and discontinuesoperations
April 05, 2008 - Skybus Airlines files anddiscontinues operations
April 10, 2008 - Frontier Airlines files April 26, 2008 - Eos Airlines files and discontinues
operations
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CONCLUSION According to Bruce Kasman (chief economist at JP Morgan, New
York) - "A return to growth in the second half of the year is notequal to a return to health.
Since US is one of the major super powers, a recessionmild ordeeper will have eventual global consequences.
USA may cut their capital investments into the country if theyhave to control recession at their end.
Till the stocks didnt climb upwards chances were thatinvestors will loose more money.
Any significant slowdown in U.S. economy is bound to havereverberations elsewhere.
Banks who lend money in a big way have got huge holes intheir lockers.
Bankers like Lehman Brothers have been sucked in to a black holealready.
Without adequate funds in circulation, there is no road torecovery.
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THANK YOU
Utkarsh Sethi&
Neeru Rawat
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