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Recession in U.S. Economy 2008

Recession in U.S. Economy 2008. By: Vishal Meghani Abhinav Singh. What is recession?.

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Recession in U.S. Economy 2008

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  1. Recession in U.S. Economy2008 By: VishalMeghani Abhinav Singh

  2. What is recession? A recession is a contraction phase of the business cycle. The U.S. based National Bureau of Economic Research (NBER) defines a recession more broadly 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." A sustained recession may become a depression.

  3. Causes of recent recession • Demand pull inflation due to rising oil and food prices (the main thrust behind the recession) • Cost push inflation affecting the transport, courier and airline industry due to rising oil prices • Real estate market collapsed • Aftermath of the sub-prime crisis and the ensuing credit crunch

  4. Timeline of events • During the weekend of September 13–14, Lehman Brothers declared bankruptcy after failing to find a buyer. • Bank of America agreed to purchase Merrill Lynch. • Insurance company AIG sought a bridge loan from the Federal Reserve. • A consortium of 10 banks created an emergency fund of at least $70 billion to deal with the effects of Lehman's closure similar to the consortium put forth by J.P. Morgan during the stock market panic of 1907 and the crash of 1929.Stocks on "Wall Street" tumbled on September 15. • On September 16, news emerged that the Federal Reserve may give AIG an $85 billion (£48 billion) rescue package, on September 17, 2008, this was confirmed. The terms of the rescue package were that the Federal Reserve would receive an 80% public stake in the firm.

  5. Timeline of events • The biggest bank failure in history occurred on September 25 when JP Morgan Chase agreed to purchase the banking assets of Washington Mutual. • The year 2008 as of September 17 has seen 81 public corporations file for bankruptcy in the United States, already higher than the 78 in 2007. • Lehman Brothers being the largest bankruptcy in U.S. history also makes 2008 a record year in terms of assets with Lehman's $691 billion in assets all past annual totals. • On September 29, Citigroup beat out Wells Fargo to acquire the ailing Wachovia's assets will pay $1 a share, or about $2.2 billion. In addition, the FDIC said that the agency would absorb the company's losses above $42 billion.

  6. Effects on world • As of October 2008, stocks in North America, Europe, and the Asia-Pacific region had all fallen by about 30% since the beginning of the year. • There were several large Monday declines in stock markets world wide during 2008, including one in January, another in August, and another in september. • Global Confidence-:Although the US economy is less important than in the past, a US recession would still have a major impact on economic confidence around the globe. In particular a US recession may lead to lower European growth which will harm both China and US.

  7. Effects on world 1. Exports To US.32% of Chinese Exports go to the US. If there was a slowdown in US consumer spending this would adversely affect the Chinese manufacturing industry.23% of Japanese exports go the the US, in particular the automobile industry is heavily reliant on the US economy.The Export sector are crucial to both Japan and China. 2. Japanese subsidiaries in the US.Many Japanese firms have subsidiaries in the US. These subsidiaries would be directly affected by a US recession. It would mean that the main companies would have less potential to invest, because their profits are lower.

  8. Effects on india It would be naïve to imagine that a recession in the United States would have no impact on India. • Restructuring of asset allocation • IT Enabled Services sector may be hit • Manufacturing sector has to ramp up scale economies • Loss of jobs in India

  9. Effects on india • Bring down GDP growth • Increase of unemployment • Loosening of rupee • Tourism sector could be affected

  10. Facts To Note • Government bailouts and takeovers Northern Rock ·IndyMac Federal Bank ·Fannie Mae ·Freddie Mac ·American International Group ·Bradford & Bingley ·Fortis ·Glitnir ·Hypo Real Estate ·Dexia • Company acquisitions Countrywide Financial ·Bear Stearns ·Alliance & Leicester ·Merrill Lynch ·Washington Mutual ·Derbyshire Building Society ·Cheshire Building Society ·HBOS ·Lehman Brothers ·Ameriquest Mortgage · Wachovia • Company failures New Century Financial Corporation ·American Freedom Mortgage ·American Home Mortgage ·Lehman Brothers ·NetBank ·Terra Securities ·Sentinel Management Group ·Washington Mutual

  11. How to minimize its effects? • By increasing liquidity in the market • Catalyzing domestic demand • Cut down interest rates

  12. Recent efforts • September 19, short selling on 799 financial stocks was banned. • President George W. Bush asked Congress on September 20, 2008for the authority to spend as much as $700 billion to purchase troubled mortgage assets and contain the financial crisis. • Central banks in Hong Kong,Indonesia,Taiwan and China slashed the interest rates. • Central banks all around the world poured billion of dollars to infuse liquidity in the market.

  13. THANKS!! QUERIES??

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