Recession - here it comes

RECESSION: Technically speaking recession means a contraction in Gross Domestic Product GDP (total value of goods and services produced in a country) for two consecutive. Most of the countries especially in the developed world are already in recession and this is putting further strains on the developing countries like India and China. many steps have been taken to combat this and things are certainly gonna get worse before they get better.

A search on the internet suggests two principal criteria for distinguishing a depression from a recession: a decline in real GDP that exceeds 10%, or one that lasts more than three years. America’s Great Depression qualifies on both counts, with GDP falling by around 30% between 1929 and 1933. Output also fell by 13% during 1937 and 1938. The Great Depression was America’s deepest economic slump (excluding those related to wars), but at 43 months it was not the longest: that dubious honour goes to the one in 1873-79, which lasted 65 months. If we look at past contractions in output as given in the figure, we see that not only developed countries but even developing countries face this grave situation.

Economic downturns in the developed world after 1950 have been shorter and lot less steeper than they used to be. Recessions are usully caused by tight monetary policy(high interest rates), while depression is usually caused by bursting asset or price bubbles. Equity, housing, commodities, art, u name it; everything that is traded has seen its prices come crashing down. this sudden collapse beginning Jan 2008 is having its impact worldwide on spending, solvency, jobs et, al. Lets see how countries are faring.

• The U.S:-6% annualized
• Japan: -3% after slight growth during previous quarters
• Germany: -2%
• The U.K:contracts by .8% in Q3

Steps Taken

• Central banks around the world have cut interest rates to record lows to boos lending and investment. This is on top of huge liquidity infusion to combat financial crises
• Governments are boosting spendin saying goodbye to fiscal prudence.
• Financial and acuto sector bailouts to keep the economic engine runnig.
• Tax cuts.

How far the recession will last and how deep will that be still remains a question. Monetary easing (lower interest rates) would have their results only after certain time and Government action would be limited by the already high deficits. only hope is the emerging market economis like China, India and Brazil to help the global economy from sinking...