A Recession is a prolonged period of time when the nation’s economy is slowing or it is the reduction of the Gross Domestic Product(GDP) for at least six months. The producers and consumers are the two basic people upon whom the whole economy revolves. The value of goods and services is determined by supply and demand. In case the price is too high there will be less demand and the producer reduces the price to increase supply.
Increasing demand leads to an increase in the production thereby increased supply which in turn results in increased labour ,materials and overall increase in price.Now the general feeling is good. You want to make investments and consequently the stock markets go up.
Consequently this leads to overproduction and the supply exceeds consumption.Now the attitude of the people changes to saving mentality and this can lead to a contracting economy.People spotting a negative trend on one area fears the same to happen in other areas and suddenly RECESSION is on.
In a market economy the market is determined by demand and competition putting it beyond any control.A government has the fiscal and monetary policies in controlling the recession.While the former is on collecting and spending money and latter on manipulating the available money. Both can either improve the situation or worsen it.
According to the Halfway Rule past recessions lasted only for 13 months. So continuing with the trends the present recession is predicted to last till 2010.
A recession in US should worry India as it has major outsourcing deals.The strengthening rupee is another cause of concern.Oil prices coming down is at present keeping inflation down.The way out of the present crisis is only through a massive fiscal stimulus either by monetizing or by tax cuts.Indian Government is relying on private investments and resurrection in agriculture.
But the stress should be on public spending as advocated by Keynes who argued that the solution to recession is through reduced interest rates and increased public spending.
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February 23rd, 2009 at 1:21 pm
Several issues get thrown up by the current economic situation.
Before you trust that half year rule of WSJ understand that the recession started in the USA in the last quarter of 2007 and we are already 13 months down the line. The light at the end of the tunnel is yet to be seen. If some can still see it, beware, it may be the headlights of an approaching train.
Keynesian concepts work when governments have the monetary space to expand debt, monetise the deficit and what some call – pump prime the economy through government spending. USA, unfortunately spent its way into the trouble and is now trying to spend its way out of the trouble.
Let us understand simple back bench economics. Say the fiscal deficit of a country is 10% of GDP, the debt is to be either financed by borrowing or by printing currency. Printing currency pushes up inflation whereas borrowing implies service costs. With a negative growth of GDP how on earth any government can service the borrowing cost? And with interest rates at close to 0% how can one aim to borrow money from anyone or how can anyone be foolish enough to lend at 0% interest?
The credit crunch of USA has spread from sub-prime to Alt-A and now to prime borrowers. Indiscriminate securitisation of education loans, credit card loansand other receivables by the same Wall Street is responsible for the financial mess. Demographics are strongly against Eurozone and Russia. Export led economies cannot export their way out of trouble and importing countries do not have the cash unless the exporters lend back the earned dollars. So, what does the future portent?
Stretching out on a limb, let me state the following:-
The dollar has come to the end of its life as the global reserve currency.
Europe and Russia are on a permanent decline and unless emigration is permitted on a massive scale, these countries will die out naturally.
There will be a need to evolve a global currency with multi-lateral cooperation which will not be influenced by USA or Europe.
The Global Recession will run its course for the entire 2009 and a major part of 2010.
Asia will be the first place which will emerge out of recession with strength.
The Global pecking order will have undergone a sea change.
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February 24th, 2009 at 4:05 am
Nice post Vigil..
Found this video which explains the Credit Crisis in laymans terms…
Good viewing: http://www.labnol.org/internet/credit-crisis-ex...
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February 24th, 2009 at 12:21 pm
Hei superb!!!
I'm impressed that young professionals thousands of miles away appreciate and think about the global impact of the U.S. economy, both generally and on India outsourcing businesses specifically.
In my opinion, the recession is going to be both bad and good for outsourcing and legal outsourcing businesses, depending on their size, market footprint, industry base and the amount that their clients spend on outsourcing as a proportion of the total amount spent on that function
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February 25th, 2009 at 5:14 pm
Yes after Obama's statement now it's hard for the Indian companies in outsourcing business.
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May 3rd, 2009 at 10:12 pm
Well, in my view, outsourcing is not a product, to make a make or buy decision on… It is also not dependent on the comments of Mr. Obama. I don't think outsourcing will stop just by one announcement worldwide. Mr. Obama forget that the economy does not run by itself. (Remember those barter system days, people were exchanging goods for goods and every body were happy, now imagine if they would have never exchanged). Outsourcing plays a crucial role in running economy and not in making economy. Outsourcing is a accelerator and not the foundation. The foundation is the economy. The economy will revive only by a give and take. As everyone will benefit. Now remain the question of Jobs, Well Jobs should never be judged in terms of outsourcing. It should be treated as a seperate entity to deal with. Hope this helps.
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February 19th, 2010 at 3:17 am
Cheers. Yet one more wonderful entry, this can be the key reason why I come for a site every so often…
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May 26th, 2010 at 5:56 am
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June 26th, 2010 at 4:15 pm
I don’t understand how France could have lost. Could that have been quicker. I believed that they had a good chance to do well in this years world cup. Maybe next time. Maybe its time to jump on the Argentina bandwagon. Looks like Demichelis has already scored. Go Argentina. To make me feel a little better from that by France, I have been listening to some funny jokes.. This one made me laugh really hard: http://www.youtube.com/watch?v=N3j7uSbccSc
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