A Dull, Heavy Calm

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A Dull, Heavy Calm

  1. 1. The world economy has stopped falling, now what?The Economist October 3, 2009<br />A Dull, Heavy Calm<br />Presentation by: <br />RajdeepMajumdar Faculty:<br />RhohanChaterjee Dr. TamalDattaChaudhuri<br />RajiAlam<br />RinkiMusaddi<br />
  2. 2. Introduction<br />Recession is the economy shrinking for two consecutive quarters (=6 months) with a decrease in the GDP (=Gross Domestic Product)<br />GDP = Value of all the reported goods and services produced by the people operating in the country<br />GDP = MONEY VALUE OF {C + I + G + (X – M)}<br />C = Consumables, I = Gross Investments, G = Government Spending, <br />X = Exports, M = Imports<br />
  3. 3. Causes of Recession<br />Sub Prime Mortgage <br />Inflation & Reducing Disposable Income<br />Economic Slowdown <br />Global Credit Crunch <br />
  4. 4. Revival Phase <br />Aaron Wildavsky’s “Searching for Safety” : resilience was sometimes a greater virtue than prescience. Will it bounce or is it broken?<br />Household will resume spending.<br />Companies will restock their inventories.<br />Debt of banks and households will take years to repay.<br />America can take following two steps: <br />Tariff on imports<br />Rely on Fiscal Stimulus<br />
  5. 5. Lessons learnt from Financial Disaster<br />Poor data<br />Predatory borrowing <br />Lack of regulatory oversight<br />
  6. 6. Market knows best & Everything<br /><ul><li>Lack of transparency and confidence
  7. 7. Collapse of Long Term Capital Management
  8. 8. Moral hazard
  9. 9. Asymmetry of </li></ul> information<br />
  10. 10. How to manage the Disaster ?<br /><ul><li>Stricter norms
  11. 11. Creating market by expanding the set of eligible collateral
  12. 12. Credit history assessment</li></li></ul><li>WHY IS USA BETTER PLACED THAN JAPAN ?<br /> USA economy is bigger in size<br />Different policies of handling distressed loans<br />USA government acting more aggressively<br />Bank`s troubled debtors are different <br />
  13. 13. Global Slowdown – What Next?<br />
  14. 14. What Needs to be Done?<br />Create Inflation<br />Generate Employment<br />Increase Government Spending<br />Fiscal Policy<br />
  15. 15. Conclusion<br />The World Will Recover <br />“When it is over there is Calm ,but a dull, heavy calm”.<br /> - Alfred Marshall<br />
  16. 16. THANK YOU<br />

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