Recent Recession

In the recent times, we have all seen what inflation is and how devastating its affects can be on our lives. No soul on earth could ever have imagined the economic crisis that the world was facing during this period. Various huge, renowned and profit making banks, firms and businesses, all came to a standstill condition and started going towards the darker path of closure.

The effects of recession are always drastic. An economic decline in the country is known as recession. People hold the purchasing power and opt for the cheaper substitutes of the consumer products since they have to survive during the difficult time of recession. The most manufacturing companies used to stop their production as there is no demand and movement of their product in the market. The most common scenario is observed at the job front. Since the commercial activities are become stagnant, most companies are retrenching their staff due to the recession. Besides, people are unable to find another job as the effects of economic recession is everywhere in the country. The decrease of sales and cash outlay becomes the regular sights. The cycle of recession comes from fear of the future. A recession is a shallow and shorter cycle than a depression. An economic decline in the US has affected on all the business within the country. The main sufferers from the recession were the manufacturers of luxury goods, automobiles etc. The recent falls in the US stock markets are the result of expectations of a future downturn in the economy. Lower growth generates lesser profits and this is the key reason to decline the dividends and shares lost their charm. The firms would observe low sales and this encourage firms and companies to reduce their operating cost. Falling sales would lead to lower income and lower income would stop all the spinning wheels of the company due to lack of sufficient fund. Those companies or manufacturers producing the products for basic necessities would have to face the stiff competition in the market to sell their products. Many of them would be prepared to sell of their products even at the cost price or little lower than the cost price to run the company and meet their expenses.

The root cause of 1990 1991 recession was the gulf war which tool hold of the U S economy in late 1990 which was expected to be over soon. The gulf war caused lot of damages to the economy of western region since they all had to co-operate with the U S. The gulf war was activated by U S though it has nothing to do with their internal politics but just to take the greater advantage from the oil rich countries, the U S led the war mainly attacking on Iraq. According to many economists and insiders, the war was just a drama since U S always wanted to acquire the oil wealth of Iraq in order to save the petroleum products of their own. When the deal was converted into the compromise, the war was called off. As a matter of fact the economy of the U S was badly disturbed during 1987 but somehow it was not declared. After the gulf war, they found a chance to announce that the country is facing the symptoms of recession due to the gulf war and many manufacturing units were benefitted from this to shut down directly. Japan is after the U S economy since long time and they are interested to sabotage the development of the productivity. As such U S hardly manufacture anything except the destructive weapons and aircrafts etc. and to sell them off, they find some weak and developing countries and encourage them to fight with each other so that U S can sell their arms and ammunition to these countries and make money out of it. Economic conditions in the healthcare sector are just beginning to respond to a fall in gross national product when the rest of the economy turns around and begins to rise. Response to rapid growth during expansions is similarly delayed. The slow adjustment of the healthcare sector tends to average out changing economic forces over the preceding three to five years.

The extend span of recession is known as depression. The state of depression is risky for the economy of any country. When the recession or depression affects the global market, leaves the drastic effects everywhere. The global markets are already deeply affected and depressed, sank further and investors appeared unconvinced that vague commitments agreed to by world political leaders will take the preventive measures to avid recession. The after effects of recession are always very dangerous and it causes mainly on the employment of the people. Millions of people are axed from their jobs since there is no business in the market. No demand for the product leads to stop the manufacturing of those products and the people associated with manufacturing units have to be retrenched. The commercial activities of the most companies go stagnant and as a result the market experiences the draught of customers. The buyers on the other hand opts for the cheaper alternatives of their consumer products and they economies on their expenses to survive from the difficult phase of market depression. Failure of the G20 meeting to produce any concrete measure or solution to deal with the global recession has caused markets to continue to trade with a sell bias to start as early as possible. Bay street’s benchmark S&P / TSX combined index, following the lead of market in Europe and most of Asia. The stock market crash depression was responsible to drop more than 260 points, pulled down by a further slump in world commodity prices including oil which observed a sharp fall to less than 55 dollars per barrel. Fuel is such a commodity that affects everywhere in the world. Wall Street’s blue-chip Dow Jones industrial average, after ups and downs ended the activity due to stock market depression in the red and down more than 220 points.

Recession refers to the significant drop in economic activity of the country. The dragon of recession has just enveloped the whole world into its clutch and many monetarily sound countries are now observing the state of recession and Canada is just one of them. The effects of current recession are very severe and even developed and prosperous countries are not spared from its worst clutches. The most affected sectors of the recession are employment and Gross Domestic Products. They are undesirable but in a market economy like Canada’s cycle of recession and prosperity are regular features of long term economic growth and development. There are many reasons for the recessions. Most often, business build up inventories and as a result cut back their production and lay off staff. The demand for the products diminishes in the market and manufacturers have to postpone further production due to lack of demand. This largely affects on the sources of income, when there is no sale, income eliminates accordingly. The increasing effect of lower income and low spending also shakes confidence in the economy. During the earlier Canada recessions, the Canadian economy shrank substantially. The GDP decreased from 1990 to 1991 by 1% and the rate of unemployment rose above 10%. Both, federal and provincial governments have posted their higher deficits as they collected less income tax and there was a remarkable spending at corporate sector on employment insurance benefits etc. The Canadian government is trying to avoid or overcome recession by adjusting monetary and fiscal policies - increasing spending, cutting taxes and lowering rates of interest on the loans of all types - in order to create demand for the goods and services. The bank of Canada had reduced the rate of interest many times to co-op with the spreading recession. Canada may eventually experience a technical recession, but nothing like the painful downturn it suffered during 1990.

Credit crunch is a situation where an economic condition in which investment capital is difficult to obtain. Normally banks and investors become cautious of lending funds to corporations which drives up the price of debt products for borrowers. A credit crunch is generally considered to be an extension of recession. A credit crunch makes it nearly impossible for companies to borrow because lenders are scared of bankruptcies or defaults which might result in higher rates of interest. The result is a prolonged recession which occurs as an outcome of shrinking credit supply. A credit crunch is also known as credit squeeze, finance crunch or credit crisis. This is a situation where reduction in the general availability of loans or sudden tightening of the conditions availability of credit independent of rise in official interest rates. In such conditions, the relationship between credit availability and interest rates has absolutely changed, either credit becomes less available at any official rate of interest or there or it is not available totally. Many times the credit crunch is accompanied by a flight to quality by lenders and investors as they seek less risky investments. The money lenders and financial institutions hesitate to invest into larger venture since they don’t find any security for their investments. Business credit crunch is an economic condition in which loans and credits for investment are become unavailable abruptly. This is largely due to the increase in cost of loans provided by the banks and other financial institutions in an environment in which large losses and asset value write downs are taking place.

The National Bureau of Economic Research defines economic recession as a significant decline in the economic activity spread across the economy, lasting more than a specified period. Recession can be associated with many different areas like sharply rising prices, falling prices, declines the employment, investment and overall corporate profits. Severe or long running recessions are known as depressions. The severe recession is known as high inflation or hyper inflation. This is the outcome of an economic collapse. A decline in GDP more than 10% is normally considered as a depression. The United States is enveloped by the recession from all the corners. The country once considered as one of the richest in the world is now facing the harsh reality of the recession largely due to its economical policies. United States economic recession has affected large number of employment and big corporate houses. Many renowned companies are now closed due to lack of business. The people are holding the spending power and as a result, the market is observing a draught of the buyers. The majority manufacturing companies have held their manufacturing since there is no demand and movement in the market for their products. The United States economic recession is not a new thing for the country. As the history reveals, in the past also the country had suffered a great setback due to the recession. The country had not experience the downturn in economy like the way it is passing through with the remarkable losses in real estate, banking, insurance and manufacturing of luxurious goods etc. The world is now observing United States in recession state and the rate of unemployment is increasing every day. Many expatriates were retrenched from their jobs, mainly Indian nationals, with an excuse that the country is now facing recession.

China is known for its growing economy at the cost of offering cheap labor sources for duplicating the products. China is widely known as the photocopy machine of the world, experts in duplicating the known products. In order to meet the massive requirements pouring in from the every corner of the world, China has millions of manufacturing units producing various types or original and duplicate goods throughout the day. Besides duplicating, many companies are assigning them the production work of their desired products. The Chinese goods are known for their cheap quality and prices and most people avoid it due to the malpractice in manufacturing. They have produced substitute items for every productive material and they are widely using those elements in manufacturing cheap products. They also produce quality products under the strict specification of the principal. China is the largest populated place and due to the cheap labor standards there, many manufacturers have shifted that manufacturing units in china in order to take greater advantage of the easily available labor. China offers skilled and unskilled labor for every manufacturing unit. China largely depends upon the production contracts awarded from the western countries mainly Europe and US. Since they don’t have their own specific productivity, they have to depend on these countries largely. So when these countries are affected by their created recession, China also got affected equally since there was no more production orders offered to china from other countries. As their own productivity, china has their own porcelain and handicraft products but that comes under the luxurious goods and demand for these types of products is always limited in the world. Most Chinese production houses are manufacturing various products as per the orders from the other customers. In this process they failed to generate their own identity for particular specialized products. Today China is also facing the recession despite the claims from their government that they maintain stable economy.

The economy fluctuates due to various reasons, as per the opinion of the economic analysts, by the uneven government policies and by the innate nature of the market. Fluctuations in the economy are now a natural element of life. The modern life has also to bear the political responses due to the fluctuations in the economy. With the sharp nosedive observed into the property market, many people prefer to invest their surplus resources into real estate. The interest rates on the loan to be issued goes down compared to the interest earned on the deposits. The major activity of any financial institute depends on the investment and to earn profit through various sources. They have lot deposit and so as to offer the interest on the deposit, they have to invest those deposits into some fruitful or beneficial investment. It has been observed that interest rates during recession go down as no one requires the commercial or personal loans from the bank. The government tries to excite the economy by lowering the interest rates in recession. Since the government is controlling the rate of interest, it makes easier for the bank to get liquidity. The lower rate of interest affects the business as they can get the loans on the favorable rates. The forex business declines due to lower value of the local currency against the strong foreign currency. Many business houses dealing with import or export business tend to keep their commercial activities on hold due to potential loss in the business. The interest on credit card normally does not decline but the new issues of credit cards offering better interest rates during recession. Recession and interest rates are related to each other; the rates are lowered during the recession and normalized once the recession is over. The interest rates on home equity loan and mortgage declines to some extent as banks have large surplus of funds to offer. Mortgages are long term debts so they react slower to short termed interest fluctuations.

The early recession 2001 was mainly observed in western countries affecting the European Union largely during the period of 2001 2003 recession. The U S economy was badly affected during recession 2002 followed by Canada and Australia. Country like Russia did not experience economical prosperity since 1990 observed some faint signs of improvisation. The recession phase touched many growing and developed countries including Japan and England. Most countries were hiding the lean phase of economy and economists of those countries were quite hopeful for the improvisation but things did not settle that way and the lean phase of recession continued further affecting badly to the economies of the country. The recession has largely affected the life of the people. Most work forces were retrenched from various commercial and industrial sector and they were left with no means to survive. Many of them had to opt for inferior jobs to support their existence. The markets were flooded with the goods but the purchasing power was missing. As a result, the production houses had to put a full stop on further manufacturing. Many economists object to characterizing it as a recession in the U S since there were not two consecutive periods of negative growth. During past recessions, the most severe economic impact invariably has fallen on the growing children. The child poverty increased double than the general population. During 2001 recession, the child poverty remained essentially flat while non elderly adult poverty increased remarkably. The recession that started during 2001 differs obviously from the earlier recessions. The current recession has nearly broken from the normal historical pattern. The recession that began since 2001 has continued its span till today and affected badly on the growing economy of all the countries. The vastly populated countries are affected more from the recession. The countries depending on other source for their economy are suffering the most such as China and other far eastern countries. There are countries highly dependent on their parent countries are the worst victims of the bad patch than others. Countries like Pakistan, Philippines and other far eastern countries are mainly depending on U S. They cannot survive without the financial aids from U S and development in these regions is just negligible. Their economy is never developed due to the readymade aid available from their principal. Due to the failure in financial sector, the unemployment has increased throughout the world.