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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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