Free Essay

Recession

In: Social Issues

Submitted By PKSAMANTA
Words 3886
Pages 16
Recession In economics, a recession is a business cycle contraction. It is a general slowdown in economic activity.[1][2] Macroeconomic indicators such as GDP (gross domestic product), investment spending, capacity utilization, household income, business profits, and inflation fall, while bankruptcies and the unemployment rate rise. Recessions generally occur when there is a widespread drop in spending (an adverse demand shock). This may be triggered by various events, such as a financial crisis, an external trade shock, an adverse supply shock or the bursting of an economic bubble. Governments usually respond to recessions by adopting expansionary macroeconomic policies, such as increasing money supply, increasing government spending and decreasing taxation.
Definition
In a 1975 New York Times article, economic statistician Julius Shiskin suggested several rules of thumb for defining a recession, one of which was two down consecutive quarters of GDP.[3] In time, the other rules of thumb were forgotten. Some economists prefer a definition of a 1.5% rise in unemployment within 12 months.[4]
In the United States, the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) is generally seen as the authority for dating US recessions. The NBER defines an economic recession as: "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales."[5] Almost universally, academics, economists, policy makers, and businesses defer to the determination by the NBER for the precise dating of a recession's onset and end.
In the United Kingdom, recessions are generally defined as two consecutive quarters of negative economic growth, as measured by the seasonal adjusted quarter-on-quarter figures for real GDP.[6][7] The exact same recession definition apply for all member states of the European Union.
Attributes
A recession has many attributes that can occur simultaneously and includes declines in component measures of economic activity (GDP) such as consumption, investment, government spending, and net export activity. These summary measures reflect underlying drivers such as employment levels and skills, household savings rates, corporate investment decisions, interest rates, demographics, and government policies. Economist Richard C. Koo wrote that under ideal conditions, a country's economy should have the household sector as net savers and the corporate sector as net borrowers, with the government budget nearly balanced and net exports near zero.[8][9] When these relationships become imbalanced, recession can develop within the country or create pressure for recession in another country. Policy responses are often designed to drive the economy back towards this ideal state of balance.
A severe (GDP down by 10%) or prolonged (three or four years) recession is referred to as an economic depression, although some argue that their causes and cures can be different.[4] As an informal shorthand, economists sometimes refer to different recession shapes, such as V-shaped, U-shaped, L-shaped and W-shaped recessions.
Type of recession or shape
Main article: Recession shapes
The type and shape of recessions are distinctive. In the US, V-shaped, or short-and-sharp contractions followed by rapid and sustained recovery, occurred in 1954 and 1990–91; U-shaped (prolonged slump) in 1974–75, and W-shaped, or double-dip recessions in 1949 and 1980–82. Japan’s 1993–94 recession was U-shaped and its 8-out-of-9 quarters of contraction in 1997–99 can be described as L-shaped. Korea, Hong Kong and South-east Asia experienced U-shaped recessions in 1997–98, although Thailand’s eight consecutive quarters of decline should be termed L-shaped.[10]
Psychological aspects
Recessions have psychological and confidence aspects. For example, if companies expect economic activity to slow, they may reduce employment levels and save money rather than invest. Such expectations can create a self-reinforcing downward cycle, bringing about or worsening a recession.[11] Consumer confidence is one measure used to evaluate economic sentiment.[12] The term animal spirits has been used to describe the psychological factors underlying economic activity. Economist Robert J. Shiller wrote that the term "...refers also to the sense of trust we have in each other, our sense of fairness in economic dealings, and our sense of the extent of corruption and bad faith. When animal spirits are on ebb, consumers do not want to spend and businesses do not want to make capital expenditures or hire people."[13]

Balance sheet recession The bursting of a real estate or financial asset price bubble can cause a recession. For example, economist Richard Koo wrote that Japan's "Great Recession" that began in 1990 was a "balance sheet recession." It was triggered by a collapse in land and stock prices, which caused Japanese firms to have negative equity, meaning their assets were worth less than their liabilities. Despite zero interest rates and expansion of the money supply to encourage borrowing, Japanese corporations in aggregate opted to pay down their debts from their own business earnings rather than borrow to invest as firms typically do. Corporate investment, a key demand component of GDP, fell enormously (22% of GDP) between 1990 and its peak decline in 2003. Japanese firms overall became net savers after 1998, as opposed to borrowers. Koo argues that it was massive fiscal stimulus (borrowing and spending by the government) that offset this decline and enabled Japan to maintain its level of GDP. In his view, this avoided a U.S. type Great Depression, in which U.S. GDP fell by 46%. He argued that monetary policy was ineffective because there was limited demand for funds while firms paid down their liabilities. In a balance sheet recession, GDP declines by the amount of debt repayment and un-borrowed individual savings, leaving government stimulus spending as the primary remedy.[8][9][14][15]
Paul Krugman discussed the balance sheet recession concept during 2010, agreeing with Koo's situation assessment and view that sustained deficit spending when faced with a balance sheet recession would be appropriate. However, Krugman argued that monetary policy could also affect savings behavior, as inflation or credible promises of future inflation (generating negative real interest rates) would encourage less savings. In other words, people would tend to spend more rather than save if they believe inflation is on the horizon. In more technical terms, Krugman argues that the private sector savings curve is elastic even during a balance sheet recession (responsive to changes in real interest rates) disagreeing with Koo's view that it is inelastic (non-responsive to changes in real interest rates).[16][17]
A July 2012 survey of balance sheet recession research reported that consumer demand and employment are affected by household leverage levels. Both durable and non-durable goods consumption declined as households moved from low to high leverage with the decline in property values experienced during the subprime mortgage crisis. Further, reduced consumption due to higher household leverage can account for a significant decline in employment levels. Policies that help reduce mortgage debt or household leverage could therefore have stimulative effects.[18][19]
Liquidity trap

A liquidity trap is a Keynesian theory that a situation can develop in which interest rates reach near zero (zero interest-rate policy) yet do not effectively stimulate the economy. In theory, near-zero interest rates should encourage firms and consumers to borrow and spend. However, if too many individuals or corporations focus on saving or paying down debt rather than spending, lower interest rates have less effect on investment and consumption behavior; the lower interest rates are like "pushing on a string." Economist Paul Krugman described the U.S. 2009 recession and Japan's lost decade as liquidity traps. One remedy to a liquidity trap is expanding the money supply via quantitative easing or other techniques in which money is effectively printed to purchase assets, thereby creating inflationary expectations that cause savers to begin spending again. Government stimulus spending and mercantilist policies to stimulate exports and reduce imports are other techniques to stimulate demand.[20] He estimated in March 2010 that developed countries representing 70% of the world's GDP were caught in a liquidity trap.[21]

Paradoxes of thrift and deleveraging
Behavior that may be optimal for an individual (e.g., saving more during adverse economic conditions) can be detrimental if too many individuals pursue the same behavior, as ultimately one person's consumption is another person's income. Too many consumers attempting to save (or pay down debt) simultaneously is called the paradox of thrift and can cause or deepen a recession. Economist Hyman Minsky also described a "paradox of deleveraging" as financial institutions that have too much leverage (debt relative to equity) cannot all de-leverage simultaneously without significant declines in the value of their assets.[22]
During April 2009, U.S. Federal Reserve Vice Chair Janet Yellen discussed these paradoxes: "Once this massive credit crunch hit, it didn’t take long before we were in a recession. The recession, in turn, deepened the credit crunch as demand and employment fell, and credit losses of financial institutions surged. Indeed, we have been in the grips of precisely this adverse feedback loop for more than a year. A process of balance sheet deleveraging has spread to nearly every corner of the economy. Consumers are pulling back on purchases, especially on durable goods, to build their savings. Businesses are cancelling planned investments and laying off workers to preserve cash. And, financial institutions are shrinking assets to bolster capital and improve their chances of weathering the current storm. Once again, Minsky understood this dynamic. He spoke of the paradox of deleveraging, in which precautions that may be smart for individuals and firms—and indeed essential to return the economy to a normal state—nevertheless magnify the distress of the economy as a whole."[22]

Predictors
There are no known completely reliable predictors, but the following are considered possible predictors.[23]
• Inverted yield curve,[24] the model developed by economist Jonathan H. Wright, uses yields on 10-year and three-month Treasury securities as well as the Fed's overnight funds rate.[25] Another model developed by Federal Reserve Bank of New York economists uses only the 10-year/three-month spread. It is, however, not a definite indicator;[26]
• The three-month change in the unemployment rate and initial jobless claims.[27]
• Index of Leading (Economic) Indicators (includes some of the above indicators).[28]
• Lowering of asset prices, such as homes and financial assets, or high personal and corporate debt levels.

Government responses
See also: Stabilization policy
Most mainstream economists believe that recessions are caused by inadequate aggregate demand in the economy, and favor the use of expansionary macroeconomic policy during recessions. Strategies favored for moving an economy out of a recession vary depending on which economic school the policymakers follow. Monetarists would favor the use of expansionary monetary policy, while Keynesian economists may advocate increased government spending to spark economic growth. Supply-side economists may suggest tax cuts to promote business capital investment. When interest rates reach the boundary of an interest rate of zero percent (zero interest-rate policy) conventional monetary policy can no longer be used and government must use other measures to stimulate recovery. Keynesians argue that fiscal policy—tax cuts or increased government spending—works when monetary policy fails. Spending is more effective because of its larger multiplier but tax cuts take effect faster.
For example, Paul Krugman wrote in December 2010 that significant, sustained government spending was necessary because indebted households were paying down debts and unable to carry the U.S. economy as they had previously: "The root of our current troubles lies in the debt American families ran up during the Bush-era housing bubble...highly indebted Americans not only can’t spend the way they used to, they’re having to pay down the debts they ran up in the bubble years. This would be fine if someone else were taking up the slack. But what’s actually happening is that some people are spending much less while nobody is spending more — and this translates into a depressed economy and high unemployment. What the government should be doing in this situation is spending more while the private sector is spending less, supporting employment while those debts are paid down. And this government spending needs to be sustained..."[29]
Stock market
Some recessions have been anticipated by stock market declines. In Stocks for the Long Run, Siegel mentions that since 1948, ten recessions were preceded by a stock market decline, by a lead time of 0 to 13 months (average 5.7 months), while ten stock market declines of greater than 10% in the Dow Jones Industrial Average were not followed by a recession.[30]
The real-estate market also usually weakens before a recession.[31] However real-estate declines can last much longer than recessions.[32]
Since the business cycle is very hard to predict, Siegel argues that it is not possible to take advantage of economic cycles for timing investments. Even the National Bureau of Economic Research (NBER) takes a few months to determine if a peak or trough has occurred in the US.[33]
During an economic decline, high yield stocks such as fast moving consumer goods, pharmaceuticals, and tobacco tend to hold up better.[34] However when the economy starts to recover and the bottom of the market has passed (sometimes identified on charts as a MACD[35]), growth stocks tend to recover faster. There is significant disagreement about how health care and utilities tend to recover.[36] Diversifying one's portfolio into international stocks may provide some safety; however, economies that are closely correlated with that of the U.S. may also be affected by a recession in the U.S.[37]
There is a view termed the halfway rule[38] according to which investors start discounting an economic recovery about halfway through a recession. In the 16 U.S. recessions since 1919, the average length has been 13 months, although the recent recessions have been shorter. Thus if the 2008 recession followed the average, the downturn in the stock market would have bottomed around November 2008. The actual US stock market bottom of the 2008 recession was in March 2009.
Politics
Generally an administration gets credit or blame for the state of economy during its time.[39] This has caused disagreements about when a recession actually started.[40] In an economic cycle, a downturn can be considered a consequence of an expansion reaching an unsustainable state, and is corrected by a brief decline. Thus it is not easy to isolate the causes of specific phases of the cycle.
The 1981 recession is thought to have been caused by the tight-money policy adopted by Paul Volcker, chairman of the Federal Reserve Board, before Ronald Reagan took office. Reagan supported that policy. Economist Walter Heller, chairman of the Council of Economic Advisers in the 1960s, said that "I call it a Reagan-Volcker-Carter recession.[41] The resulting taming of inflation did, however, set the stage for a robust growth period during Reagan's administration.
Economists usually teach that to some degree recession is unavoidable, and its causes are not well understood. Consequently, modern government administrations attempt to take steps, also not agreed upon, to soften a recession.
Impacts
Unemployment
Unemployment is particularly high during a recession. Many economists working within the neoclassical paradigm argue that there is a natural rate of unemployment which, when subtracted from the actual rate of unemployment, can be used to calculate the negative GDP gap during a recession. In other words, unemployment never reaches 0 percent, and thus is not a negative indicator of the health of an economy unless above the "natural rate," in which case it corresponds directly to a loss in gross domestic product, or GDP.[42]
The full impact of a recession on employment may not be felt for several quarters. Research in Britain shows that low-skilled, low-educated workers and the young are most vulnerable to unemployment[43] in a downturn. After recessions in Britain in the 1980s and 1990s, it took five years for unemployment to fall back to its original levels.[44] Many companies often expect employment discrimination claims to rise during a recession.[45]
Business
Productivity tends to fall in the early stages of a recession, then rises again as weaker firms close. The variation in profitability between firms rises sharply. Recessions have also provided opportunities for anti-competitive mergers, with a negative impact on the wider economy: the suspension of competition policy in the United States in the 1930s may have extended the Great Depression.[44]
Social effects
The living standards of people dependent on wages and salaries are more affected by recessions than those who rely on fixed incomes or welfare benefits. The loss of a job is known to have a negative impact on the stability of families, and individuals' health and well-being.[44]
History
Global
Main article: Global recession
According to the International Monetary Fund (IMF), "Global recessions seem to occur over a cycle lasting between eight and 10 years."[46] The IMF takes many factors into account when defining a global recession. Until April 2009, IMF several times communicated to the press, that a global annual real GDP growth of 3.0 percent or less in their view was "...equivalent to a global recession."[47][48] By this measure, six periods since 1970 qualify: 1974–1975,[49] 1980–1983,[49] 1990–1993,[49][50] 1998,[49][50] 2001–2002,[49][50] and 2008–2009.[51] During what IMF in April 2002 termed the past three global recessions of the last three decades, global per capita output growth was zero or negative, and IMF argued—at that time—that because of the opposite being found for 2001, the economic state in this year by itself did not qualify as a global recession.[46]
In April 2009, IMF changed their Global recession definition to:
• A decline in annual per capita real World GDP (purchasing power parity weighted), backed up by a decline or worsening for one or more of the seven other global macroeconomic indicators: Industrial production, trade, capital flows, oil consumption, unemployment rate, per capita investment, and per capita consumption.[52][53]
By this new definition, a total of four global recessions took place since World War II: 1975, 1982, 1991 and 2009. All of them only lasted one year, although the third would have lasted three years (1991 93) if IMF as criteria had used the normal exchange rate weighted per capita real World GDP rather than the purchase power parity weighted per capita real World GDP.[52][53]
United Kingdom
Main article: List of recessions in the United Kingdom
The most recent recession to affect the United Kingdom was the late-2000s recession.
United States
According to economists, since 1854, the U.S. has encountered 32 cycles of expansions and contractions, with an average of 17 months of contraction and 38 months of expansion.[5] However, since 1980 there have been only eight periods of negative economic growth over one fiscal quarter or more,[54] and four periods considered recessions:
• July 1981 – November 1982: 14 months
• July 1990 – March 1991: 8 months
• March 2001 – November 2001: 8 months
• December 2007 – June 2009: 18 months[55][56]
For the past three recessions, the NBER decision has approximately conformed with the definition involving two consecutive quarters of decline. While the 2001 recession did not involve two consecutive quarters of decline, it was preceded by two quarters of alternating decline and weak growth.[54]
Late 2000s
Main article: Great Recession
Official economic data shows that a substantial number of nations were in recession as of early 2009. The US entered a recession at the end of 2007,[57] and 2008 saw many other nations follow suit. The US recession of 2007 ended in June 2009[58] as the nation entered the current economic recovery.
United States
The United States housing market correction (a possible consequence of United States housing bubble) and subprime mortgage crisis significantly contributed to a recession.
The 2007–2009 recession saw private consumption fall for the first time in nearly 20 years. This indicates the depth and severity of the current recession. With consumer confidence so low, recovery takes a long time. Consumers in the U.S. have been hard hit by the current recession, with the value of their houses dropping and their pension savings decimated on the stock market. Not only have consumers watched their wealth being eroded – they are now fearing for their jobs as unemployment rises.[59]
U.S. employers shed 63,000 jobs in February 2008,[60] the most in five years. Former Federal Reserve chairman Alan Greenspan said on 6 April 2008 that "There is more than a 50 percent chance the United States could go into recession."[61] On 1 October, the Bureau of Economic Analysis reported that an additional 156,000 jobs had been lost in September. On 29 April 2008, Moody'sMoody's declared that nine US states were in a recession. In November 2008, employers eliminated 533,000 jobs, the largest single month loss in 34 years.[62] For 2008, an estimated 2.6 million U.S. jobs were eliminated.[63]
The unemployment rate in the US grew to 8.5 percent in March 2009, and there were 5.1 million job losses until March 2009 since the recession began in December 2007.[64] That was about five million more people unemployed compared to just a year prior,[65] which was the largest annual jump in the number of unemployed persons since the 1940s.[66]
Although the US Economy grew in the first quarter by 1%,[67][68] by June 2008 some analysts stated that due to a protracted credit crisis and "...rampant inflation in commodities such as oil, food, and steel," the country was nonetheless in a recession.[69] The third quarter of 2008 brought on a GDP retraction of 0.5%[70] the biggest decline since 2001. The 6.4% decline in spending during Q3 on non-durable goods, like clothing and food, was the largest since 1950.[71]
A 17 November 2008 report from the Federal Reserve Bank of Philadelphia based on the survey of 51 forecasters, suggested that the recession started in April 2008 and would last 14 months.[72] They project real GDP declining at an annual rate of 2.9% in the fourth quarter and 1.1% in the first quarter of 2009. These forecasts represent significant downward revisions from the forecasts of three months ago.
A 1 December 2008, report from the National Bureau of Economic Research stated that the U.S. has been in a recession since December 2007 (when economic activity peaked), based on a number of measures including job losses, declines in personal income, and declines in real GDP.[73] By July 2009 a growing number of economists believed that the recession may have ended.[74][75] The National Bureau of Economic Research announced on 20 September 2010 that the 2008/2009 recession ended in June 2009, making it the longest recession since World War II.[76]
Other countries
Many other countries, particularly in Europe, have undergone decreasing rates of GDP growth. Some countries have been able to avoid a recession but have still experienced slower economic activity, such as China. India and Australia were able to maintain positive growth throughout the late-2000s recession.…...

Similar Documents

Free Essay

Recession

...Project Report On Impact of Recession in India Submitted to: Submitted by: Mrs. Kawaljeet Kaur Harsimranjeet Kaur Regd: 625241502 In the partial fulfillment of the requirement for the BBA degree course of the Swami Satyanand College of Management & Technology. INDEX Introduction to recession Definition of recession Attributes of recession Causes & Effects of recession Stock Market & Recession Recession & Politics History of Recession Current crisis in the US Impact of recession in India Consequences of US Recession Conclusion Bibliography Acknowledgement If words are considered to be sign of gratitude then let these words convey the very same. I am highly indebted to lecturer Miss. Shveta, who has provide me with the necessary information and also for the support and her valuable suggestions and comments on bringing out this report in the best way possible. I feel great pleasure to cordial thanks to all faculty members of management department of SSCMT who sincerely supported me with the valuable insights into the completion of this project and I am thankful to that power that always inspire me to take right step in the journey of......

Words: 5577 - Pages: 23

Premium Essay

Recession

...Recession One of the most commonly used term nowadays is “recession”. We read about it in newspapers an year ago, then heard about it in television 3-4 months back and now we are getting a feel of what exactly it is. Recession is not a new phenomenon, it last happened in America during 2002-2003 and many times before that also. But what makes this recession so fearsome is its magnitude and the countries which are being affected by it. What started out as a bursting of housing bubble soon crippled the American Banks, then Its economy and now the pinch of it is being felt all over the world except, of course, Antarctica which is least affected by it due to obvious reasons. Many factors lead to recession, which economists believe will lead to depression. There’s no absolute definition of depression or recession as such with various economists publishing their own theories and definitions of these terms which are usually different in meaing from each other. Most widely used definition of recession is “Whenever a country witness decrease in GDP growth in consecutive 2-4 quarters, we say that the respective country is in recession” whereas “if there’s a decrease in GDP growth for more than 4 consecutive quarters, we say the respective country is in depression”. My friends over here will be mentioning the obvious points like subprime crisis, bankruptcy of investment banks like AIG, Lehmann Brothers, Freddie Mac, faltering of mortgage loans and some other common points. I, on......

Words: 651 - Pages: 3

Free Essay

Hotels Recession

...„RECESSION HAS AFFECTED TOURISM INDUSTRY GLOBALLY. WHAT MEASURES CAN BE TAKEN BY UK HOTELS?‟ “CASE STUDY: MARRIOTT GROUP OF HOTEL‟S EFFORT TO ATTRACT MEDICAL TOURISTS” RAMAMOORTHY PANDIAN STUDENT ID: 09004669 DISSERTATION SUPERVISOR THOMAS REEVES SUBMITTED IN PART FULFILLMENT OF THE REQUIREMENT FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION UNIVERSITY OF WALES INSTITUTE, CARDIFF FEB 2010 1 ACKNOWLEDGEMENT First and foremost, I would like to thank my supervisor Thomas Reeves for his valuable professional advice and guidance as well as for rendering his kindness, endless patience and continuous encouragement towards my dissertation. I would like to thank interviewees in the Marriott Group of hotels and its branches, without which this study could not have been reached its conclusion. A handful of thanks to all the lecturers of my concern for their teaching, without them, I can‟t learn so much knowledge. This dissertation could not have been completed without continuous support, encouragement, and caring of all my friends and my family members. I would wish them many a thanks too. Finally, I would like to express my sincere appreciation to those who provided me with great support and encouragement during my studies in UK. Thanks again to all of them. 2 ABSTRACT The aim is to find out the most possible means that recession would affect the tourism industry globally and also to pay attention towards the various measures taken over...

Words: 19699 - Pages: 79

Premium Essay

Recession

...How the current recession has impacted on the sales of various businesses in Barbados 1.1 Introduction Recession is being experienced all over the world, it changes the way countries and economies develop and how they function. Based on the region I live in, which is the Caribbean. I have decided to focus on my country which is Barbados; the centre of my focus is how recession impacts the sales varies business in Barbados. The business I am testing this theory on is Moniesha Snackette it is a small business, owned and operated by Violet Taylor, which is based in Belleplaine St. Andrew. ` First and foremost we must first define what recession is, ‘recession is a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.’’ Sales is define as, “the act of selling a product or service in return for money or other compensation. Signalling completion of the prospective stage, it is the beginning of an engagement between customer and vendor or the extension of that engagement.” Sales are very important to an organisation, without sales, the company does not make a profit and if the company does not make a profit is fails, so the amount of sales a business has determines whether or not a business is successful or whether it fails. Unfortunately because of the recession Moniesha Snackette has been experiencing some difficulty in selling and making profits, as......

Words: 369 - Pages: 2

Premium Essay

The Great Recession

...The Great Recession and the Great Depression John Maynard Keynes wrote in the depths of the Great Depression that, “Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”1 This acute observation is applicable to our current Great Recession as well. In fact, the newly discredited ideas are not too different from the old, suggesting that Keynes may have overestimated the ability of people to learn from their mistakes. I discuss the parallels between these two watersheds in recent economic history in three steps. The first and most important step is the causes of the crises and their relation to economic theory. The second step is the spread of the crises as they affected the whole world. I close with the final step, recovery—at least as far as we can see it at this point. Marx said famously that history repeats itself, “the first time as tragedy, the second as farce.”2 I argue that this observation also fits our current condition. Both of these dramatic and costly economic crises came from the interaction of economic imbalances in the world economy and the ruling ideology of financial decision makers who confronted these imbalances. The first imbalance came from the First World War. This paroxysm of violence brought the long economic expansion of the nineteenth century to a sudden end. Britain, the workshop of the prewar world, was exhausted by the struggle. America, the......

Words: 5245 - Pages: 21

Free Essay

The Great Recession

... THE GREAT RECESSION Anthony Pellegrino March, 2014 The Great Recession and Economic Policy Abstract The most recent Great Recession (GR), including the events which led to it, the policies which followed it and the slow recovery after it have been a topic of debate and inquiry since it began in 2008 and ended in 2009. The purpose of this thesis is to portray those events from the perspective of a 21-year-old economics student in 2014. I, that student, will recount the events which are portrayed as the official cause(s) of the GR, accounting for alternative theories. Then I will examine the policy responses by the Federal Reserve (Fed) and the US Federal government and analyze some historical talking points regarding the GR from multiple sources. Following that, I will explain the effects of policy responses, confront the possibility that responses only served to mask the symptoms instead of removing the cause, and try to explain the atypical slow recovery that we’re currently experiencing. I will list the sectors which were affected by the GR chronologically, beginning with the housing market, and include those presently experiencing the effects and those likely to suffer in the future. I will include, where relevant, common misconceptions about the GR. Finally, I will conclude by offering alternative explanations for the GR and alternative potential policy responses. This item will synchronize with my final judgment of whether we’re on the right track or if the worst has......

Words: 300 - Pages: 2

Premium Essay

Recession

...Bryant and Stratton College ECON220: The History of Recessions in the U.S. Instructor: P, Created by: Brandon April 8, 2014 Throughout history the United States has gone through many economic ups and downs and has tried to create new procedures to ensure that the same problem does not occur again. In this presentation we are going to look at some of the recessions that the country has endured, how these recessions happened, when, and how the government attempted to correct the problem. While there are many different opinions on how to correct and prevent these recessions from happening we are going to look at the facts that lead to these crisis’ in the U.S. economy. The financial press often states the definition of a recession as two consecutive quarters of decline in real GDP. NBER (National Bureau of Economic Research) states that a recession is a period between a peak and a trough, which does not necessarily always consist of two consecutive quarters of decline in real GDP but a significant decline in economic activity that spreads across the economy and can last from a few months to more than a year. [1] The first recession we are going to explore is The Great Depression which many say started as a recession. Although the economy began to decline in the middle of 1929 and continued to fall until the first few months of 1933, Black Tuesday, (October 29, 1929) was the day the stock market crashed and what many people affiliate to the beginning......

Words: 1889 - Pages: 8

Free Essay

Global Recession

...By Prof. Dipika Lecturer in P.G. Dept. of Commerce K.L.S.D. College Ludhiana Global Recession and Impact on Various Sectors of Indian Economy ABSTRACT The word 'Recession' denotes a temporary period of economic decline during which trade and Individual activities are reduced. Till date, the world has witnessed a number of economic recessions that brought the trade market to a standstill and left the economists and analysts with valuable lessons to be learnt for future. Globalization and liberalization have contributed a lot in making the entire world a close knit economic unit. In an interconnected global economy recession and economic turbulence in one part of the world has the potential to disrupt the economies of other countries in a major way. The economic slowdown in US economy in 2008 caused by the burst of housing bubble engulfed the entire world in its grip. This research paper aims to give a detailed account of US Recession-2008 and its impact on Indian Economy. The financial crisis has not only affected United States of America, but also European Union, U.K and Asia. The Indian Economy too has felt the impact of the crisis to some extent. Though it is difficult to quantify the impact of the crisis on India, it is felt that certain sectors of the economy would be affected by the spill over effects of the financial crisis. INTRODUCTION The current global financial crisis is rooted in the subprime crisis which surfaced over a year ago in the......

Words: 1280 - Pages: 6

Premium Essay

The Great Recession

...Introduction The U.S. economy is currently experiencing its worst crisis since the Great Depression. The crisis started in the home mortgage market, especially the market for so-called “subprime” mortgages, and is now spreading beyond subprime to prime mortgages, commercial real estate, corporate junk bonds, and other forms of debt. Total losses of U.S. banks could reach as high as one-third of the total bank capital. The crisis has led to a sharp reduction in bank lending, which in turn is causing a severe recession in the U.S. economy. This article analyzes the underlying causes of the current crisis, estimates how bad the crisis is likely to be, and discusses the government economic policies pursued so far (by both the Fed and Congress) to deal with the crisis. Housing Bubble Homeownership, (realtors) argue, is a way to achieve the American dream, save on taxes, and earn a solid investment return all at the same time. It's now clear that people who chose renting over buying in the last two years made the right move. In much of the country, recent homebuyers have faced higher monthly costs than renters, and have lost money on their investment in the meantime. Today, many homeowners are in up side down mortgages, meaning the purchasers owe more on their homes than what it is actually worth. In countless cases, it can be said that money has been thrown away, an insult once reserved for renters. Throughout the bubble period there was little if any......

Words: 2774 - Pages: 12

Premium Essay

Great Recession

...This assignment´s main objective is to clarify the Great Recession, it´s causes and consequences. Then, it will be highlighted the possible relation between the actual crisis and one(s) of the “killer apps” listed by Neil Fergunson, a British Historian known by his provocative and controversial views. Many economics acknowledge the Great Recession to be the most devastating global economic crisis since the Great Depression in the 30´s. This crisis is based on some factors, worth to be emphasized, such as easy credit conditions that encouraged high risk lending and borrowing practices; international trade imbalances; the housing bubbles; the fiscal policy choices by the governments, related to their revenues and expenses or the position taken by some federal reserve banks, especially on the bailing out process of financial institutions. The first cause we can appoint it’s related to the risk or actual bankruptcy of the major financial institutions globally, starting with the collapse of the “Lehman Brothers” (September 2008), a global financial services firm. Some of these kinds of institutions highly invested in risky securities, which depreciate almost their entire value, when United States and European housing bubbles began to deflate during the 2007-2009 period. Consequently, as share and housing prices decreased, a major panic was installed on the inter-bank loan market, resulting on the failure of many others large and well established investment and......

Words: 635 - Pages: 3

Premium Essay

Communication and Recession

...Communication and Recession Air Guangzhou is a nationwide well-known airline in China. A multi-level management structure is being implemented within the large-scale business organization. The board of directors is the top management, under which are the middle-level and front-line managerial teams. Its middle management is departmentalized, which consists of marketing, accounting, human resource departments and so on. Formal and informal communications are both used depending on the actual situation. The business’ current profit is much lower than before, even made an economic loss several months ago. In today’s globally economic recession, many fresh graduates have not undertaken an employment for a long time since they leave school, and some persons who used to have a job are also suffering from unemployment at the moment. There is a largest population in China, besides. Due to the extremely competitive employment circumstance existing in the country, the staffs at AG (Air Guangzhou) cannot but be aware of the possible recession, they often talk about it in the spare time. It is easy to find out the reduced purchasing power according to the fallen sales reported monthly by the marketing department. As a respond to the customers’ smaller buying power, the board of directors of AG holds a formal meeting to develop SMART goals to attract more travelers, and then action plans like promotions will be created. However, accounting department’s reports predict that it is......

Words: 637 - Pages: 3

Premium Essay

Uk Recession

...UK ECONOMY GROWTH FROM DEEP RECESSION: In UK, while considering the level of the decline is found by 2 factors, * After the big fall of international banking system there is more weakness in credit zone. * Failure in spending and producing the products by lack of confidence Recuperating the Economic level is not possible in short period. In 2009, UK GDP falls to 6%. It initially shows the negative GDP in 3rd and 4th quarters in 2008 and the government project there is no growth in country’s GDP till 2010. The analysis reported that the decline will be smaller in continental Europe. The organization for Economic Co-operation and Development (OECD) analysed and reported that retardation has been more “distinct than projected”. As a result, in 2010 the growth forecast for the leading economies reduces to 1.5% from 1.75%. Due to recession the consumer is less in purchasing of apparels. The retailer already imported huge amount of apparel goods. The inventory level is increased with most of the retailers in UK. As the supplies of apparel is more and demand in the market is less because of recession. The price of apparel is reduced. The less demand in market made the retailers to reduce the garment sales price by giving more discounts is directly reducing their profit margins. IMPACT OF CRUDE OIL PRICE INCREASE: considering the crude oil production down in 2008 which increases the price of the crude oil from $40 barrel to $92 per barrel. The increase in crude......

Words: 655 - Pages: 3

Free Essay

Recession and Perception

...“It’s a recession when your neighbour loses his job; it's a depression when you lose yours.” These wise words from a former U.S. president made me question how true this really is in reality. It is obvious that our minds and what we think play an enormous role in what goes on around us. Our thoughts seem to take over, causing us to act or react in a certain way. These reactions in reality are caused by our immediate perceptions of the given subject, issue or concern. What if recessions are caused by our reactions to things around us such as the media and so called “experts”? The recession had to start somewhere. How many times have you turned on the news hearing “we are in a recession, we have to save our money and stop spending”? The majority of people will hear this and follow along because of the constant charts and graphs supposed experts bombard the public with. Contrary to popular belief, people’s perspective of a recession, can in actuality, cause and fuel it even further. The famous Greek philosopher Plato, in his work Allegory of the Cave provides insight into how a recession can be perpetuated due to the public’s perspective. In his allegory, humans are depicted as prisoners chained in a cave only seeing shadows from the light and creatures that walk behind them. One of the prisoners was released and was exposed to the reality outside the cave. Allegory of the Cave can be interpreted in many ways. The way I see it, people accept reality from the......

Words: 1520 - Pages: 7

Premium Essay

Recession 2016

...A recap of the events building up to The Real Estate Bubble, the causing factors of The Financial Crisis of 2008 and the likelihood and implications of an Economic Recession in 2016 Karan Sharat Nath Pace University, Lubin School of Business Kn31474n@pace.edu ------------------------------------------------- Table of Contents 1. Abstract 2. Introduction 3. The Real Estate Bubble and Great Recession 4. Signs that point towards a Global Economic Downturn 5. Conclusion: Consequences of a recession in 2016 6. Work Citied ------------------------------------------------- Abstract This research paper aims to briefly recap the events that led to the real estate bubble and global financial crisis of 2008, collect data that could indicate a financial downturn that could lead to a recession that is sparked in 2016 and understand the implications that a recession in 2016 would have upon the Global Financial System. The recession that ensued in 2008/2009 was the worst widespread downturn witnessed since the Great Depression of the 1920’s and 1930’s. Since the peak of the downturn the S&P has almost doubled and unemployment has dropped by nearly half. But at present many vital indicators that monitor US growth and economic activity are displaying so very troubling signs. With the majority of this growth over the last decade being enabled by central bank support and cheap money, expansion is not sustainable. Eventually......

Words: 3440 - Pages: 14

Premium Essay

Greece Recession

...A Time Bomb-Greece recession In ancient Greece mythology, bringing in a normal trophy leads Tory fall to enemy’s occupation. Now, similarly, the European countries that had promoted Greece to enter the Euro area, is swallow heavily their bad decision. Who had expect, a country accounted for only 2.5% of the overall southern European countries of the Eurozone would drag others into mud. Greece debt crisis began in December 2009. Three major international rating agencies continuously lowered Greece's credit rating, caused Greece stock market crash and the sharp rise in risk aversion in the international market. Under the pressure of insolvency, Greece government asked for assistance from the European Union and the International Monetary Fund in April 2010. A year ago, relying on the European Union and 110 billion euros of aid pledged at the International Monetary Fund, Greece barely survived the bankruptcy crisis. However, the first bill out did not solve the Greece’s finance tsunami because taking new debt based one older one could only accelerate debt level. It is estimated that if Greece can’t borrow at least 30 billion euros this year, the national bankruptcy will not be able to avoid. Therefore, in order to push the second round billing, the Greece Government intends to tighten its belt and launched austerity program. But in front of the selection of survival or dignity, Greece better to die with honor than to survive in disgrace. Then it is hardly surprising that the...

Words: 2133 - Pages: 9