User:Chakreshsinghai/recession

• July 13, 1990-September 4, 1992: 8.00% to 3.00% (Includes 1990-1991 recession) rate drop chart rate rise chart
• February 1, 1995-November 17, 1998: 6.00 - 4.75 rate drop chart1 rate drop chart2 rate rise chart
• May 16, 2000-June 25, 2003: 6.50- 1.00 (Includes 2001 recession) rate drop chart1 rate drop chart2 rate rise chart
• June 29, 2006- (Mar. 18 2008): 5.25-2.25 rate drop chart

Siegel^[12] points out that cuts in the Federal funds rate are now widely anticipated; thus, cuts are no longer followed by a longer-term rise in stock market indexes.

The declining frequency of recessions in the past two decades and the reduction in declines in GDP suggest that the Federal Reserve has been successful in moderating contractions. However some critics argue that reducing the Federal funds rate has had the effect of adding too much liquidity to the financial markets.

Stock market and recessions

Some recessions have been anticipated by stock market declines. In

Since the business cycle is very hard to predict, Siegel argues that it is not possible to take advantage of economic cycles for timing investments. Even the NBER takes a few months to determine if a peak or trough has occurred[15].

During an economic decline,

There is no commonly accepted definition of a global recession.^[19] The IMF estimates that global recessions seem to occur over a cycle lasting between 8 and 10 years. During what the IMF terms the past three global recessions of the last three decades, global per capita output growth was zero or negative.

Economists at the International Monetary Fund say that a global recession would take a slowdown in global growth to three percent or less. By this measure, three periods since 1985 qualify: 1990-1993, 1998 and 2001-2002.^[20] International Monetary Fund has recently lowered its 2008 global growth projection from 4.9 percent to 4.1 percent (as measured in terms of purchasing power parity).^[21]

There is significant speculation about a possible

• Less spending by American consumers and companies reduces demand for imports.
• The crisis of the U.S. subprime-mortgage market has pushed up credit costs worldwide and forced European and Asian banks to write down billions of dollars in holdings.
• Dropping U.S. stock prices drag down markets elsewhere.

Possibility of a 2008 recession

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Since 2007, there had been speculation of a possible recession starting in late 2007 or early 2008. The

While some economists were confident about a recession[26], others were not as easily convinced.^[27] While some believed that the current slowdown would at best be a mild and brief recession,^[28] there was always an anticipation that the economy may start recovering in the later part of 2008.^[29]

In February 2008, Nouriel Roubini suggested a harsh 12-step scenario.^[30]. Some of the events he predicted have actually occurred.

1. U.S. home prices will fall between 20% and 30% from their peak. NYTimes chart
2. Losses to the financial system from the subprime disaster, as high as $300 billion, are now spreading to near-prime and prime mortgages.
3. The recession will lead to a sharp increase in defaults on other forms of unsecured consumer debt.
4. Monoline insurance companies will take losses on their insurance of residential mortgage-backed securities, collateralized debt obligations and other asset-backed securities products, which are much higher than the $10 billion-to-$15 billion rescue package that regulators are trying to arrange.
5. The commercial real estate loan market will soon enter into a meltdown similar to the subprime one.
6. Some large regional or even national banks that are very exposed to mortgages, residential and commercial, may go bankrupt. (
   JP Morgan Chase
   .)
7. Banks' losses will grow as a result of hundreds of billions of dollars of leveraged loans on their balance sheets at values well below par, currently about 90 cents on the dollar.
8. Once a severe recession starts, a massive wave of corporate defaults will take place. Typically U.S. corporate default rates are about 3.8% (1971-2007); in 2006 and 2007 this figure was a rather low 0.6%. And in a typical U.S. recession such default rates surge above 10%.
9. The “shadow banking system” (as defined by Pimco, it is composed by non-bank financial institutions that borrow short and in liquid forms and lend or invest long in more illiquid assets), will soon get into serious trouble.
10. Stock markets in the U.S. and overseas will start pricing in a severe U.S. recession and a sharp global economic slowdown.
11. The credit crunch that is affecting most credit markets and credit derivative markets will lead to a drying up of liquidity in several financial markets, including otherwise very liquid derivatives markets.
12. A vicious cycle of losses, capital reduction, credit contraction, forced liquidation of assets at below fundamental prices will ensue, leading to further credit contraction.

The EEAG Report on the European Economy 2008 states:^[31]

The 2008 performance of the U.S. economy is difficult to predict due to the declining house prices and the subprime crisis, the full impact of which is still unclear. ..., it is not in our view very likely that the U.S. economy will fall into recession. Recessionary tendencies will be counteracted by both low interest rates and a substantial fiscal stimulus programme. Our forecast is that U.S. GDP will grow by 1.7 percent in 2008.

U.S. employers shed 63,000 jobs in February 2008, the most in five years, supporting the view that the U.S. is falling into a recession. ^[32]. NBER's president, Harvard University economist Martin Feldstein, recently said on March 14, 2008 we are in a recession, though it was not an official NBER declaration^[33]. He said the nation has entered a recession that could be the worst since World War II. The economists surveyed by Bloomberg News this month predicted the GDP growth will slow to 0.1 percent in January to March.

A TrimTabs report on April 1, 2008 suggested a possible ending of recession based on treasury withholding data in very near future^[34].

Updates: March 7, 2007: Martin Feldstein, head of NBER said: I think that December/January was the peak and that we have been sliding into recession ever since then. I think it could go on longer last two recessions (which) lasted eight months peak to trough".^[35]. However former Federal Reserve chairman Alan Greenspan said on April 6, 2008 that "There is more than a 50 percent chance the United States could go into recession." However Anatole Kaletsky has argued that recession unlikely if US economy gets through next two crucial months^[36].

29th of April, 2008: Several US states are declared to be in a recession, they are as follows: Rhode Island, Ohio, Michigan, Wisconsin, Florida, Tennessee, California, Nevada and Arizona. ^[37]

30, April, 2008: The US Economy grew in the first quarter by .06%. The Commerce Department says the US is "stuck in a rut" and does not meet the clasical definition of a recession. However "a growing number of economists believe the economy is in a recession"^[38][39]

Recession and politics

Generally an administration gets credit or blame for the state of economy during its time.^[40] This has caused disagreements about when a recession actually started.^[41] In an economic cycle, a downturn can be considered a consequence of an expansion reaching an unsustainable state, and is corrected by a brief decline. Thus it is not easy to isolate the causes of specific phases of the cycle.

The 1981 recession is thought to have been caused by the tight-money policy adopted by Paul Volcker, chairman of the Federal Reserve Board, before Ronald Reagan took office. Reagan supported that policy. Economist Walter Heller, chairman of the Council of Economic Advisers in the 1960s, said that "I call it a Reagan-Volcker-Carter recession.^[42] The resulting taming of inflation, did, however, set the stage for a robust growth period during Reagan's administration.

Causes of recessions

• speculation
• futures contracts
• national debt
• inflation
• devalued currency

Effects of recessions

• unemployment
• foreclosures
• bankruptcies
• stock market downturn
• reduced sales
• banks lend less money
• inflation

See also

• List of recessions
  - A list of important recessions in the United States
• Great Depression - August 1929 to March 1933: longest recession of the 20th century
• Age wave theory - Consequence of baby boomers
  retiring
• Oil crisis - Global oil crises
• Remission, the equivalent in medicine

References