Recession 2008 : Comparison with The Great Depression
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Recession 2008 : Comparison with The Great Depression






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    Recession 2008 : Comparison with The Great Depression Recession 2008 : Comparison with The Great Depression Presentation Transcript

    • Recession 2008 : Comparison with
      The Great Depression
      Presented By:
      • Abhinav Sehgal
      • Akshay Anand
      • Deepika Misra
      • Karishma Jindal
      • Reuben Khanna
    • What is Recession ?
      • In economics, a recession is a business cycle contraction, a general slowdown in economic activity.
      • During recessions, many macroeconomic indicators vary in a similar way.
      • Production, employment, investment spending, capacity utilization, household incomes and business profits all fall.
      • Bankruptcies and the unemployment rate rise.
    • Types of Recession
      V-shaped recession
      U-shaped recession
      The Recession of 1973–75 in the United States could be considered a U-shaped recession.
      The Recession of 1953 in the United States is a classic V-shape.
    • L-shaped recession
      W-shaped recession
      The early 1980s recessionn the United States is an example of a W-shaped recession.
      L-shaped recession occurred in Japan following the bursting of the Japanese asset price bubble in 1990.
    • The Housing Bubble Burst
      The Subprime Mortgage Fiasco
      RECESSION 2008 : Causes
      RECESSION 2008 : Causes
      Sky-High Price of Crude Oil and Refined Product
      Dollar Devaluation
    • The Housing Bubble Burst
      • In US, a boom in the housing sector was driving the economy to a new level. 
      • Home Loans became cheap and demand increased.
      • Lending institutions and mortgage firms wanted to give loans to as many potential customers as possible.
      • People even under the NINJA category were given housing loans.
      • Overbuilding of houses led to decline in prices and refinancing became difficult.
      • As prices declined, more homeowners were at risk of default and foreclosure.
    • The Subprime Mortgage Fiasco.
      • Continuous Monetary Inflation suckered individuals into low-down-payment/low-interest adjustable mortgages.
      • Incentive is to sell the property quickly
      • Various institutions that hold the poorly performing debt obligations were forced to 'write down' the value of these assets.
      • Record supply availability, falling prices, higher insurance costs and restricted credit were prevalent.
    • Sky-High Price of Crude Oil and Refined Product.
      • World-wide speculative Middle East war fears .
      • Increase in demand (especially from China).
      • Increasing energy prices.
      • High Costs of Production.
    • Dollar Devaluation
      • Caused by Iraq blunder and the Federal Reserve–generated oversupply of dollars.
      • The bulk of crude oil purchases takes place in dollars.
      • Investments such as US Treasury bills and bonds become less attractive.
      • Prevents the Federal Reserve from pushing US interest rates much lower.
      • Worse hit are the poorest countries.
      • The 15-country Euro zone were defined as a shrinking economy for two consecutive quarters.
      • Decreased demand for exports and remittances slowed down the Asia-Pacific economy.
      • Fall in house prices and increase in unemployment in the UK economy .
      • India recovered early as there was very little exposure to foreign assets and their derivative products.
    • The Great Depression
      The American economy went from unprecedented prosperity in the 1920s to unprecedented misery in the 1930s .
    • What is Depression?
      • A depression is a sustained, long-term downturn in economic activity in one or more economies.
      • Considered, by some economists, a rare and extreme form of recession
      • Characterized by abnormally large increases in unemployment, falls in the availability of credit and large number of bankruptcies
      • Price deflation, financial crises and bank failures are also common elements
      • Stock Market Crash 1929
      • Bank Failures
      • Reduction in Purchasing Across the Board
      • American Economic Policy with Europe
      • Drought Conditions
    • Stock Market Crash 1929
      • Black Tuesday, October 29, 1929.
      • Dow Jones industrial average dropped over 12%.
      • Result of mass panic selling of stocks, causing prices to plummet .
      • Flood of sell orders provided stock prices to traders.
      • Stockholders lost more than $40 billion dollars.
      • By the end of 1930, America truly entered what is called the Great Depression.
      • Throughout the 1930s over 9,000 banks failed.
      Bank Failures
      • People who had their life savings in the banks – lost their money.
      • Individuals from all classes stopped purchasing items.
      Reduction in Purchasing
      • Reduced Production leading to reduction in Workforce.
      • Unemployed were unable to pay installments on their items, which were ultimately repossessed.
      • Unemployment rate rose above 25%.
    • American Economic Policy
      • Government created the Smoot-Hawley Tariff in 1930.
      • Charged a high tax for imports thereby leading to less trade between America and foreign countries.
      • Drought occurred in the Mississippi Valley in 1930.
      Drought Conditions
      • People could not even pay their taxes or other debts .
      • Forced to sell their farms for no profit to themselves.
      • The area was nicknamed "The Dust Bowl."
      • Expansionary fiscal policies forced by the war had brought output back to potential by 1941.
      • The U.S. entry into World War II led to much sharper increases in government purchases.
      • It ended the Great Depression.
      • By 1942, increasing aggregate demand had pushed real GDP beyond potential output.
    • Comparison between Recession 2008 & The Great Depression 1929
    • Click on the Image to see this video