Modern Economic Depression (2008)

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A short presentation on the contributing factors of the Modern Economic Depression in the United States

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Modern Economic Depression (2008)

  1. 1. the modern economicdepressionFall of the United States, Rise of the Canadian Economy
  2. 2. overview • rise of Canadian economy • reasons for economic crisis in the US • housing market bubble • sub par mortgages • other lending factors • implications on Canadian economy • what can we learn?
  3. 3. http://www.ctv.ca/servlet/ArticleNews/story/CTVNews/20070928/loonie_parity_070928/20070928?hub=Canada&s_name=
  4. 4. Canadian economy • Canadian economy usually behaves like US economy • NAFTA was formed in 1994 (removed tariffs) • Exports 80%, Imports 70% with United States • November 2007, CAD $1.1024 • Reasons for Prosperity • Stability and sustainable practices • Reduced unemployment • Encouraged business growthhttp://www.ctv.ca/servlet/ArticleNews/story/CTVNews/20070928/loonie_parity_070928/20070928?hub=Canada&s_name=
  5. 5. reasons for crisis: housing bubble• Economic Bubble - Housing Industry2001• Home ownership rate increased from64% in 1994 to 69% in 2004• Increased consumer spending,employment, real estate andconstruction• A surplus in housing forced prices tofall, lowering the real-estate market http://www43.statcan.ca/03/03_000_e.htm
  6. 6. reasons for crisis: sub-par mortgaging• Traditional Mortgage Loan • Credit Check • 30-50% downpayment • Lent to people with good financial background• Sub-Par Mortgage Loan • less strings attached • low documentation (no downpayment) • Lent to people with ‘sub-par’ financial background www.stanfordfunding.com/blog/2006/02/mortgage-glossary/
  7. 7. reasons for crisis: sub-par mortgaging• Between 1994-2003, subprime lending grew 25%• In 2005, $900 billion in subprime loans were distributed• 45% of subprime loans required low documentation• 38% of subprime loans were 100% of price of house• In 2006, 12.5% of subprime loans were already delinquenton payments after nine months• 1 of 5 subprime loans made in 2 years will go intoforeclosurehttp://www.theglobeandmail.com/servlet/story/LAC.20070112.RKOZA12/TPStory/Business/columnists?ref=patrick.net
  8. 8.   $   $  $   $  $  
  9. 9. lending factors• Rising unemployment rates (1%)• Spending on ‘War on Terrorism’ (+ $500 billion)• Large debt on imports (China) http://www.csmonitor.com/2006/1121/p01s03-usmi.html
  10. 10. GDPGDP = consumption + gross investment + government spending + (exports - imports) Decrease because Construction War on Debt to China of housing industry and Real Estate Terrorism slow-down, less shrink consumer spending http://www.businessweek.com/the_thread/economicsunbound/archives/2006/06/net_worth--and.html
  11. 11. implications on Canadian economy • Can lead to another ‘Great Depression’ • Slow down trading imports and exports with US • Threat profit margins for Canadian Businesses • Raw materials (lumber, oil) • Auto industry (#1 industry in revenues) • Real Estate worthhttp://www.canada.com/topics/news/national/story.html?id=16ce7e02-51fb-4f69-a0b1-622dfad9802c
  12. 12. what can we learn?• Invest in viable opportunities that last over a long periodof time• Maintain the integrity of your business and prosperity willfollow
  13. 13. the modern economicdepressionFall of the United States, Rise of the Canadian Economy

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