US Recession

Contents
Definition

Characteristics
Causes Subprime Lending

Stages of US Recession
Effects of US Recession on

Global Economy

Definition
Recession In economics, a recession is a business cycle contraction, a general slowdown in economic activity over a period of time for more than two consecutive quarters. Recessions generally occur when there is a widespread drop in spending often following an adverse supply shock or the bursting of an economic bubble.

Production, as measured by Gross Domestic Product (GDP), employment, investment spending, capacity utilization, household incomes, business profits and inflation all fall during recessions; while bankruptcies and the unemployment rate rise. Governments usually respond to recessions by adopting expansionary macroeconomic policies, such as increasing money supply, increasing government spending and decreasing taxation

Characterised by:

Rising Unemployment Rising Borrowing Government

Falling Share Prices Falling Investment

Causes of recession
Consumer

Pessimism
Technological

Factors
War

In finance, subprime lending ( second-chance lending) means making Loans to people who may have difficulty maintaining the repayment schedule. Proponents of subprime lending maintain that the practice extends credit to people who would otherwise not have access to the credit market.

During 2001, the U.S. economy saw a roughly eight-month long recession spurred on by the dot-com boom and bust, and worsened by the terrorist attacks of Sept. 11. In a bid to get money flowing through the economy, central banks lowered their interest rates. The surge in liquidity brought lenders and investors to take on greater risks than before.

Low interest rates helped ease credit access, allowing more people to obtain loans, including for homes. This pushed up demand, hence the prices of real estate Mortgage lenders were more at ease offering creative financing to risky borrowers. Subprime loans expanded to 20 percent of the mortgage market in 2006, from 9 percent a decade earlier,

Borrowers could not keep up with the higher payments after their ARMs reset. Lenders subsequently had reduced liquidity, reducing their ability to make new loans or refinance existing loans. This, in addition to the emerging credit crunch, left mortgage holders unable to refinance.

 Subprime

meltdown claimed its first major institutional casualty in April 2007, when New Century Financial Corp. filed for Chapter 11 bankruptcy.

Stages
First, during late 2007, over 100 mortgage lending companies went bankrupt as subprime mortgagebacked securities could no longer be sold to investors to acquire funds. Second, starting in Q4 2007 and in each quarter since then, financial institutions have recognized massive losses

Third, during Q1 2008, investment bank Bear Stearns was hastily merged with bank JP Morgan with $30 billion in government guarantees, after it was unable to continue borrowing to finance its operations. Fourth, during September 2008, the system approached meltdown. Finally, investment bank Lehman Brothers filed for bankruptcy.

 Bankruptcies
Unemployment Stock Market Sink

FDI Inflows

FDI
2007 World Europe United States Japan 1833.3 848.5 232.8 22.5 2008 1449.1 5623 220 17.4 Growth Rate(%) -21.0 -33.7 -5.5 -22.7

Middle East(West Asia)

India Singapore

71.5
23 24.1

56.3
36.7 10.3

-21.3
59.6 -57.3

How can we stand in recession?

Dont go for new investments Cut down unnecessary investments

Spend on public works such as infrastructure.

Thank You !
Abhinav Mathur Deepa Gupta

Nidhi Kaushik
Shikha Sharma