評估全國經濟崩潰

 

在經濟這方面，將陳述經濟衰退，該國的國內生產總值（GDP）的定義，或者負面的實際經濟增長，持續兩年或者更多一個季度。
 

同時被經濟衰退所影響的主要屬性是消費，投資，政府花費和凈出口活動。它也影響了底層驅動程序如就業水平和技能，家庭儲蓄，利率，人口，企業的投資決策和最后的政府政策。
 

這個項目完全是由基于2008開始的全球經濟危機的討論。
 

是什么引起了經濟衰退？
 

盡管宣布經濟衰退意味著經濟萎縮，但是導致全球經濟的最根本因素，正是從美國開始的。
 

正如俗話說的好：“當美國打噴嚏時，全世界每個人都得感冒”。
 

次貸抵押貸款危機是核心原因。
 

次貸抵押貸款危機。
 

危機是由一個尖銳的抵押貸款相關違約引起的，它導致了喪失房屋的抵押品和最終導致流動性凍結出發的信貸緊縮。
 

次貸抵押貸款是抵押貸款給搞違約風險的信用貸款。大量發行的美國抵押貸款被稱為次級，很少或沒有預付款的借款人購買了房子，汽車和其他資產。

Assessing The Global Economic Meltdown
 

In Economic terms the word Recession would state, the declination of the country’s Gross Domestic Product (GDP), or negative real economic growth, for two or more successive quarters of a year.

 

The main attributes that are affected simultaneously by recession are consumption, investment, government spending and net export activity. It also affects underlying drivers such as employment levels and skills, household savings, interest rates demographics, corporate investment decisions and finally government policies.

 

This Project is solely based on the discussion of the Global Economic Meltdown that started from 2008.

 

WHAT CAUSED THE RECESSION?

 

Although the declaration of recession means the economies shrank, but the prime factor which led the global economy to this state starts from none other than the United States of America.

 

As the popular saying goes “when United States sneezes, everybody in the world catches cold”.

 

Subprime Mortgage Crisis was the core reason.

 

Subprime Mortgage Crisis

 

The crisis was triggered by the a spike in mortgage related delinquencies leading to foreclosure of houses and ultimately a credit crunch leading to a freeze in liquidity.

 

Subprime Mortgage is mortgages which are given to high default risk credit borrowers. A lot of mortgages issued in US are called subprime that have little or no down payment are made by the borrowers to buy houses, cars and other assets. Some credit are even given to low income families or with bad credit history. Because of the nature of these mortgages, a lot of borrowers defaulted on their loans which led to banks foreclosing securities of these loans including houses, cars, and other belongings which they put as securities to the bank.

 

Credit Freeze

 

All of these securities when accumulated led to a situation called Credit Freeze. In this condition the bank didn’t have any more of credit to loan it to more customers as the assets were freeze with no willing buyers. This tightening of credit led to a serious slow down in the economy, since no more credit available the borrowers could not invest any amount of capital in their businesses.

 

IMPACT OF THE RECESSION

 

The Affects of recession were drastic and affected the market in many different ways, the series of events were:-

 

Low Demand

 

As a result of the tightening of Businesses, there was slow demand for the products of majority of businesses (excluding the basic amenities).

 

Decrease in Profits

 

The low demand led to the decrease in profits.

 

Plant Closure

 

Because of decrease of profits, some companies need to close down some of their plants to reduce costs. There is notable increase in bankruptcy filings.

 

Job Cut-Offs

 

Due to the shutdowns of the various company divisions and also the bankruptcy filings, the company lay off a lot of employees and the unemployment rate rose.

 

Stock Market Decline

 

All these series of events led to the rampant fear of stock investors dumping their stocks which led to tremendous wipe outs of stock values.

 

The Global Financial Crisis (2008)

 

The global financial crisis of 2008 is the worst of its kind since the Great Depression. It began with failures of large financial institutions in the United States. It rapidly evolved into a global crisis resulting in a number of European bank failures. The term financial crisis is applied broadly to variety of situations:-

 

1. Banking Panics (and recessions)

 

2. Stock market crashes

 

3. Bursting of financial bubbles

 

4. Currency crisis

 

5. Sovereign defaults

 

Commercial banks suffer a sudden rush of withdrawals. By depositors, this is called a Bank Run.

 

Following are Computer Generated Graph Spreadsheet Depicting the Public sector debt during the time of the recession and the recovery period. It also shows the different regions of the world with the GDP growth percentage:-

 

Major Financial Breakdown Events

 

September 7, 2008:

 

Two United States Government sponsored enterprises:-

 

Federal National Mortgage Association

 

Federal Home Loan Mortgage Corporation

 

These corporations were led into a conservatorship run by the Federal Housing Finance Agency.

 

September 14, 2008:

 

1. Lehman Brothers files for bankruptcy.

 

2. Sale of Merrill Lynch to Bank of America.

 

September 16, 2008:

 

1. AIG faces severe liquidity crunch.

 

2. Financial institutions lost a large part of their value in coming days.

 

These were some of the serious series of events that shook the very foundation of economy and particularly the United States of America.

 

The Impact of Recession on United States of America

 

The National Bureau of Economic Research is one of the nongovernmental groups of economists that studies market cyclicity, announced that the economic slump has indeed been a recession. Here is an outlook on how different sectors are affected:-

 

General Outlook

 

Gross Domestic Product, employment, business profits, investment spending, business profits and households income all fall during time of economic recession. Many US citizens have experienced significant decreases in 401K plans, mutual funds, and other accounts during this time of economic downfall.

 

President Declaration

 

According to Barack Obama, more than 600 thousand people have lost their jobs since January and according to other sources the number of people unemployed is actually higher.

 

Job Layoffs

 

Highly qualified people are looking for jobs and being demoted to lower-level job opportunities. College students that are seeking to find internships are actually having a difficult time because of all the people that are applying for internships just to boost their resume before entering back into the work force. People that haven’t lost their jobs have encountered other problems with the economy.

 

“Those who do not learn from history are doomed to repeat it”

 

George Santayana (A famous philosopher )

 

This quote refers to the economic standing in the United States because decades ago the recession led to a The Great Depression.

 

Credit Life

 

The reason is a growing sense of entitlement. The average person no longer works to save money for big purchases. Lives are lived on credit and often one debt is traded for another.
 

When the average consumer is led into a capitalist market with the misplaced understanding that credit can be treated like cash, and that debt can be accumulated according to how much one can afford as a monthly payment, we enter a semi-realistic state of general economic affairs. This recession was caused primarily by the activities of major financial institutions and lending practices.

 

Distrust of Financial Institutions

 

Another reason people aren't cramming as much money as they can into their savings accounts is due to the general distrust of financial entities. Large banks and investment companies in the United States just received a massive bailout with taxpayer dollars. If anything, this only emboldens the concept of living on credit and filing for bankruptcy or crying for consumer help if things go south.

 

Weak Foundations

 

Growth is established upon a weak foundation, such as offering loans to consumers who wouldn't normally qualify or consumers living on credit without balancing sound financial principles, the market will eventually face a correction.

 

Impact on Tourism

 

Hotels, airlines, and rental car services are seeing less business because of this recession. This is easily observed by looking at the rapidly descending prices of any of these services. Vegas is a case in point, right now you can travel to gamble your life away for a fraction of what it would have cost two years ago. There are even package deals available that include flight, hotel, and rental car service for what it would have cost to fly to Vegas.

 

Impact on Automotive Industry

 

The people are strapped for cash; they are cutting corners everywhere, especially at the pump. In an effort to save money on gas, people are trading in their cars for vehicles that can get more miles per gallon. This trend is causing foreign firms such as Toyota to thrive while firms such as Hummer are seeing a sharp decline in sales.

 

Impact on Real Estate

 

Renting houses has never been easier than it is now. People are staying away from purchasing homes. Either people cannot meet the new lending standards or because people are viewing property as a toxic asset.

 

US 401(k) and Retirement Plans

 

The US Pension Protection Act of 2006 included a provision which changed the definition of Qualified Default Investments (QDI) for retirement plans from stable value investments, money market funds, and cash investments to investments which expose an individual to appropriate levels of stock and bond risk based on the years left to retirement.

 

Most US employer were sponsoring real time plans sent notices to their employees informing them that the plan default investment was changing from a cash/stable to something different which had significant market exposure. Most participants ignored these notices. It was later after that It was called 401(k) and retirement plan providers and discovered losses in excess of 30% in some cases. People reacted in a panic by liquidating everything with any stock or bond exposure, locking in huge losses in their accounts.#p#分頁標題#e#

 

Impact on Large Businesses

 

As sales revenues and profits decline, the manufacturer cuts back on hiring new employees, or freeze hiring entirely. In an effort to cut costs and improve the bottom line, the manufacturer stops buying new equipment, curtail research and development and stop new product. Expenditures which were incorporated to marketing and advertising may also be reduced. These cost-cutting efforts will impact other businesses, both big and small, which provide the goods and services used by the big manufacturer.

 

Cuts to Quality of Goods and Services

 

In an attempt to further cut costs to improve its bottom line, the company compromises the quality, and thus the desirability, of its products. This may manifest itself in a variety of ways and is a common reaction of many big businesses in a steep recession.

 

Examples:-

 

Airlines lower maintenance standards. They install more seats per plane, further cramping the already squeezed-in passenger. Routes to marginally profitable or money-losing destinations are cut, inconveniencing customers and damaging the economies of the cancelled destinations.

 

Giant food purveyors offer fewer products, for the same price, in the same size package in which the larger amount was previously sold.

 

Reduced Consumer Access

 

Firms impacted by the recession spend less money on advertising and marketing, big advertising agencies which bill millions of dollars per year will feel the squeeze. In turn, the decline in advertising expenditures will whittle away at the bottom lines of giant media companies in every division, be it print, broadcast or online.

 

Impact on Small Businesses

 

Without major cash reserves and large capital assets as collateral, however, and with more difficulty securing additional financing in trying economic times, smaller businesses may have a harder time surviving a recession. Bankruptcies that hit smaller businesses may therefore occur at a higher rate than among larger firms.

 

Stock Market

 

Reaction of the Investors

 

Investors began selling off their stocks in favor of investment instruments not as largely affected by market volatility such as Treasury Bonds. This sell off causes stock prices to drop even further, causing an overall drop in the stock market. Lower stock prices due to a recession causes business profits to fall and often forces businesses to slow production and lay off employees, further deepening the recession. Some deeper topics in stock market are:-

 

Decreased Dividends

 

The result of a company’s stock price falling during a recession is a decrease in earnings. When earnings decrease, so do dividends since companies pay cash dividends through earnings. If the recession is deep enough, a company may quit paying dividends altogether. This lowered shareholder self confidence in the profitability of the company inducing them to sell their shares. This further lowers the stock price and further depresses the stock market as a whole.#p#分頁標題#e#

 

Market Volatility

 

The stock market moves up and down largely on investor outlook on future stock market conditions. This is also called investor sentiment. During a recession, investor sentiment is largely pessimistic and stock market volatility is higher than normal. Investment risk increases while average returns decrease with higher market volatility. As a result, investors begin moving away from riskier securities to less risky bonds. This often leads to a decline in stock market investment, causing a decline in overall stock market value.

 

Here are some of the effects of recession on the different type of stocks on the Share & Stock Market:-

 

Resistant-Stocks

 

The stocks that tend to ride out recessions the best are those not generally dependent on discretionary purchases. Health care companies are typically affected less by recessions, as people need hospitals and prescriptions just as much during economic downturns. Discount stores and fast-food chains are two other sectors that usually hold up well. As stock prices follow earnings, these sectors represent the out coming barometers of their stock performance.

 

Dividend-Paying Stocks

 

Stocks of companies that pay large dividends backed by solid balance sheets generally hold up quite well during recessions and often rise in value. As interest rates typically decline at some point during the economic downturn, those dividends look increasingly attractive to investors. The caveat is their predictability, as companies without adequate cash reserves are vulnerable to a dividend cut and a stock price that follows suit.

 

The Impact of American Recession on India

 

Introduction

 

Indian companies nowadays do major outsourcing deals from the United States. India’s exports to the United States have expanded substantially over the years. The recession hit India almost the same way it hit the rest of the developing countries of the world. The Indian companies with Big Ticket deals in the United States are seeing their profit margins shrinking gradually since 2008-2009.

 

2008-09 was a very challenging year for the Indian economy. India hasn’t witnessed the same kind of major crisis witnessed in some developed economies, but has been impacted adversely. The Indian economy, is strong macroeconomic fundamentals, has been one of the most stable and fastest growing economies of the world.

 

Effect of Sub-Prime Crisis on Indian Economy

 

Despite the sub-prime crisis and other economic events that have had negative consequences for other nations, India continued to grow at a spectacular rate of 6.7% in the fiscal year 2008-09, but if compared to the earlier years it has been significantly slow.

 

It is expected Indian Economy will regain its growth momentum to grow at its recent trend growth rate of 8% or 9% over the past 5 years because of the stable internal growth notwithstanding and the global factors environment these stimuli tough credit conditions, slackening of demand, lower export and decline in development of the economies.

 

Computer Generated Data Graphs (Economic Outlook)

 

The above graph of the GDP (Gross Domestic Product) and CPI (Consumer Price Index) basically shows the sudden decline in the country’s growth potential in the year 2008 and the sudden spike in the CPI in the same year.

 

The years 2009-2010 show recovery but at minimal rates. This concludes that the progression rate of the economy is at a very slow rate since the global economic meltdown.

 

To keep the economic growth stable at the time of recession, Federal authorities in India announced the stimulus packages to help promote economic growth. To finance these stimulus packages, The Government has raised over $100 billion over the last four quarters to finance these packages. Public debt of the country, according to the latest data has zoomed to over 50% of the total GDP and India’s Central bank, Therefore Reserve Bank of India has started printing new currency notes.

 

The Recession Affecting the Different Sectors of the Indian Economy

 

Stock Market

 

1. In this period most of the stock brokers and the general population dealing in stocks sold of much more stocks than they bought

 

2. The heavy foreign investors which used to bring in major capitol amounts pulled out of the stock market resulting in heavy losses in mutual funds and stocks/shares.

 

3. Major uncertainty issues led most of the people to save in banks rather than investing the money.

 

4. Many stock broking houses lay-off people.

 

‘Sensex rise is directly proportional to investor’s interest and vice versa’

 

Stock Market & Mutual funds Investment Analysis

 

The following graph represents the investments that the FII (Foreign Institutional Investor) made in the year of 2009 when recession was coming down from its peak. It clearly shows that the investment in the early months had been in a negative state which shows that the money was flowing rather outside than inside, but gradually later as the situations settle large sums of money start flowing in.

 

IT & Real Estate Sector

 

1. The challenges that were faced by the industries were psychological impact of the United States crisis and the major one inflation which led to a lot of panic.#p#分頁標題#e#

 

2. Perks, bonuses, parties, paid vacations and other benefits were ignored to cut cost.

 

3. India’s IT export decline by a recognizable margin.

 

4. The buildings and other construction projects came to a stall and were left half-made and uncompleted. In state of tight liquidity the real estate developers find it hard to raise finances.

 

5. Recruitment by IT companies at IIT Kanpur had gone down from 130 students in 2007 to 72 in 2008.

 

Few real time examples related to real estate are stated below:-

 

DLF

 

1. The company’s net profit for 2008-09 dipped over 41 percent to Rs.4, 629 crore from Rs.6, 176 crore earned the previous year

 

2. It was way lower than its last year profit by more than 1000 crore.

 

UNITECH

 

1. The year 2008-09 price of share decrease to Rs.21.80 from Rs.338.00

 

2. Unitech’s consolidated revenue decrease by 57.1% from Rs.11.4 billion in Q3’08 to Rs.4.9 billion in Q3’09, due to a sharp fall in revenue from the construction and real estate.

 

ANSAL

 

Their profit declined by 81.24% in the last financial year over the last year

 

INDUSTRIAL SECTOR

 

1. Private companies and the government itself were reluctant on starting new projects and new ventures. Projects that were half completed, or companies having cash flow problems at business that were near break even, may run out of cash eventually.

 

2. Automobile sales dropped drastically.

 

3. Steel & Forging plants cut production.

 

4. Tourism, hospitality and even airline business went down.

 

Federation of Indian Export Organization (FIEO)

 

FIEO conducted an intense survey in the years 2008 & 2009 which showed a predictable condition of the Indian population during the time of recession. Some of the findings are as follows:-

 

It was concluded that around 50 lakh people could lose their jobs

 

The handicraft, garment and textile industry were worse affected. Together, they lost four million jobs by April 2009.

 

Companies in India lost exports worth rupees 1792 crores during 2008 and were forced to lay off around 65000 workers.

 

BANKING SECTOR

 

1. Indian banks faced a hard time with liquidity problems. Lehman Brothers had invested a great amount of money in the Indian stock market which went down. They had invested in real estate companies such as DLF assets and Peninsula Ltd. These sustained heavy losses.#p#分頁標題#e#

 

2. ICICI a major Indian bank chain had invested greatly in Lehman bonds, which has already been discussed before had been affected the most.

 

3. Central banks worked to improve liquidity but interest rates are still high. The interest rates had drastically increased from 11.5% to nearly about 16%.

 

4. The weakening of US dollar, led to lesser funds in terms of rupees, invested by the US citizens and thus the FDI (Foreign Direct Investment) from US as such will be affected adversely.

 

Agricultural Sector

 

There has been sharp decline in the exports of agricultural and allied products specifically to countries including the US and Europe during last two years. During April 2008-February 2009, the value of export declined from $1,682 million to $735 million to the United States.

 

Recovery & Corrective Steps to Correct Recession

 

Government Policies

 

The government does not have direct control over the consumers & producers behaviors but can influence millions through their policies.

 

The government has two such kinds of policies Fiscal & Monetary which are one of the ways that they can help to regulate the economy and improve the market. The governments can control the spending of money and the RBI can change the way supply of money is carried out.

 

Fiscal Policies

 

As the above diagram shows the ways through fiscal policies are defined below:-

 

1. Taxes can be cut for businesses and individuals as well so more investment is made by public in the market.

 

2. The government can try and spend on creating jobs for the masses as the jobs lay of are on an all time high rate.

 

3. Unemployment insurances can give hope to people to start back again immediately.

 

Monetary Policies

 

The RBI (Reserve Bank of India) uses the following ways to tackle recession:-

 

1. By reducing the Reserve Ratio the economy can be affected. Reserve Ratio is the percentage of assets that the bank posses.

 

2. Lowering the interest rates would encourage the people to borrow loans and balance the flow of money in the market.

 

3. Buying government bonds can help regulate the economy.

 

Corrective Steps to Check Economy

 

1. RBI can control the outflow of FII money by unwinding by market securities.

 

2. Drawing down the dollar reserve.

 

3. There should be more of salary checking rather than job lay-offs.#p#分頁標題#e#

 

4. Public should invest in the market normally but should at the same time save a good amount of money.

 

5. The taxes on excise duty & custom duty should be reduced to reduce the load on the export /import industries.

 

6. Builders should drop prices in real estate, as to attract customers to the market.

 

7. Government and The banks should try and improve the liquidity in the market.

 

8. Multi-Pronged strategy should be adopted by the Indian Companies.

 

9. Recession proof investments can be made. (Pharmaceuticals, Banking, Entertainment & Vices, stocking up)

 

10. Safe Guard your income and reduce borrowing and invest for future.

 

11. Businessman should be aggressive in the market and stick to their important clients.

 

CONCLUSION

 

The above report concludes the 4 months of my project work on the global economic recession, its impact on the market/people and the different ways to recover and check recession.

 

It specifies the causes by which such a situation of financial crisis takes place and how it affects the different sectors in different ways. It also specifically targets the economy of United States of America and the Indian Economy as well, the roots from where it originally started, the different industries which are affected and also the measures they take to cope with this situation by improvising job lay-offs, producing degraded quality goods etc. There also been reference about the various changes in the Stock market and how people invest in different categories of stocks.

 

Later in the project the effects of recession on the Indian economy which started from United States has been discussed thoroughly and also how the different sectors of India is affected. The various ways to tackle recession by the government through different policies have been stated.

 

Finally concluding, Economy goes smoothly if there are good investments in the market such as investing in stocks, real estate, and other major businesses during the time of recession. If there are financial crisis, like housing crisis, distrust etc then people stop investing their capital and try to save it due to the bad conditions of market. This economic chain effect takes place and leads to the situation call recession which eventually can be tackled.