12-22-2009, 02:11 AM
Hi Everybody,
Toronto Boy ignited a superb dialogue and others subscribed valuable inputs. I also want to contribute my views which may be argued. First I would like to articulate about that ladyâs views. I second Kamran who very appropriately said that recession does not impinge on everyone uniformly. In small economies like Pakistan which is proscribed by a few hundred people and has less than 1% share in the world economy, recession is just a word, which most people donât experience. But in countries like US, Japan, China, Canada, Italy, individuals and businesses experience the severance of the recession. May be this lady is from Pakistan where a strong parallel economy exists.
A subterranean understanding of business cycle will help us analyze the situation. If we trace economic history, world economy has to encounter a recession every 10 to 12 years and in rare cases even a depression. Black Tuesday of 1929 is citing of great depression which Americans still commemorate on the third Friday of November every year as Black Friday. Declining GDP rate, employment, business profits, household disposable income, propensity to consume, capacity utilization, inflation etc force businesses and individuals to file bankruptcies or hoard their funds. Recession is not a situation where too much money follows too few goods. This is a situation in inflation. In US and Canada prices have dropped by 30% to 40% and yet people are spending much lesser than the amount they usually spend (Statistics Canada 2009). Recession is a very complex issue, so please donât take one-dimensional view.
Although Toronto Boy has already discussed the credit crunch in much detail but I want to take an additional position on the issue. Aggressive and imprudent lending practices by mortgage companies and financial institutions caused the recession of 2008. These companies lent money in the form of lines of credits, credit cards and particularly in house mortgage without verifying customersâ solvency. And most importantly aggressive financial management behavior of the consumers is the major source. A slight increase in interest rates made these customers unable to pay off their mortgages. One point base increase in interest in US cost $32 to each person on average. This ignited the âCredit Crunchâ. Houses were available for sell for $1.00 in the US. In my opinion, in countries other US, particularly in Europe and Japan, it was a trickledown effect of direct investments in US mortgage companies and financial institutions. Weak US dollar made the situation even worse which caused the capital to park in commodity markets. Investors started hedging in oil and oil prices soaked from $54.00 a barrel to $125.00. That caused another hard hit to world economy. These days, investors and Governments are parking their capital into gold. The gold prices have hyped from $830.00/Oz to $1234.00/Oz. In Canada, recession hit auto-manufacturing sector tough because its 80% exports are to US. Whereas the financial sector in Canada was not impacted as dreadful. Most companies in Canada are taking advantage of this recession. If you see the financials of the most Canadian companies, you would notices that they are writing off their intangibles and substantiating their financials. They are also laying off expensive employees. So the causes of recession in different countries are dissimilar.
The US and other Governments are following the same footprints of 1930. They extended bailouts to the financial sector, stimulus packages for house construction and renovation; lower the interest rates, increase in government spending in public sector particularly in infrastructure etc. The economists are focusing on easy access to finance by lowering the interest rates. In most cases interest rates in US$ and Canada are Minus prime, mortgage rates are about prime plus .75% based on credit history of the individual. That is the reason that housing sector in both the countries showing positive results in last two quarters. Government spending and interest rates are of pivotal role in re-shaping the economy. In my opinion the future is not as terrible as some of us are envisaging. Most economists, CEOs & CFOs are in the opinion of that the recession will be over by the third quarter of 2010 (A Survey conducted by Robert Half).
Wish all the best for everyone.
Toronto Boy ignited a superb dialogue and others subscribed valuable inputs. I also want to contribute my views which may be argued. First I would like to articulate about that ladyâs views. I second Kamran who very appropriately said that recession does not impinge on everyone uniformly. In small economies like Pakistan which is proscribed by a few hundred people and has less than 1% share in the world economy, recession is just a word, which most people donât experience. But in countries like US, Japan, China, Canada, Italy, individuals and businesses experience the severance of the recession. May be this lady is from Pakistan where a strong parallel economy exists.
A subterranean understanding of business cycle will help us analyze the situation. If we trace economic history, world economy has to encounter a recession every 10 to 12 years and in rare cases even a depression. Black Tuesday of 1929 is citing of great depression which Americans still commemorate on the third Friday of November every year as Black Friday. Declining GDP rate, employment, business profits, household disposable income, propensity to consume, capacity utilization, inflation etc force businesses and individuals to file bankruptcies or hoard their funds. Recession is not a situation where too much money follows too few goods. This is a situation in inflation. In US and Canada prices have dropped by 30% to 40% and yet people are spending much lesser than the amount they usually spend (Statistics Canada 2009). Recession is a very complex issue, so please donât take one-dimensional view.
Although Toronto Boy has already discussed the credit crunch in much detail but I want to take an additional position on the issue. Aggressive and imprudent lending practices by mortgage companies and financial institutions caused the recession of 2008. These companies lent money in the form of lines of credits, credit cards and particularly in house mortgage without verifying customersâ solvency. And most importantly aggressive financial management behavior of the consumers is the major source. A slight increase in interest rates made these customers unable to pay off their mortgages. One point base increase in interest in US cost $32 to each person on average. This ignited the âCredit Crunchâ. Houses were available for sell for $1.00 in the US. In my opinion, in countries other US, particularly in Europe and Japan, it was a trickledown effect of direct investments in US mortgage companies and financial institutions. Weak US dollar made the situation even worse which caused the capital to park in commodity markets. Investors started hedging in oil and oil prices soaked from $54.00 a barrel to $125.00. That caused another hard hit to world economy. These days, investors and Governments are parking their capital into gold. The gold prices have hyped from $830.00/Oz to $1234.00/Oz. In Canada, recession hit auto-manufacturing sector tough because its 80% exports are to US. Whereas the financial sector in Canada was not impacted as dreadful. Most companies in Canada are taking advantage of this recession. If you see the financials of the most Canadian companies, you would notices that they are writing off their intangibles and substantiating their financials. They are also laying off expensive employees. So the causes of recession in different countries are dissimilar.
The US and other Governments are following the same footprints of 1930. They extended bailouts to the financial sector, stimulus packages for house construction and renovation; lower the interest rates, increase in government spending in public sector particularly in infrastructure etc. The economists are focusing on easy access to finance by lowering the interest rates. In most cases interest rates in US$ and Canada are Minus prime, mortgage rates are about prime plus .75% based on credit history of the individual. That is the reason that housing sector in both the countries showing positive results in last two quarters. Government spending and interest rates are of pivotal role in re-shaping the economy. In my opinion the future is not as terrible as some of us are envisaging. Most economists, CEOs & CFOs are in the opinion of that the recession will be over by the third quarter of 2010 (A Survey conducted by Robert Half).
Wish all the best for everyone.
