Monday, November 9, 2009

Reasons for economic recession

Hi friends, after suffering for many months, we are slowly coming out from the self created economic mess but the reasons for the occurrence of recession is still a matter of debate. I have gone through many articles available on line about this unprecedented universal phenomenon but my confusion and doubts are still unanswered. I believe our quest for rapid growth is one of the major contributing factors for the recent bad phase in the world economic performance in general and America in particular. I have published a post about the misuse of credit cards few days back and no body can deny the fact that credit cards culture was also responsible for the recession. Apart from this, releasing home loans or property loans on easy terms has shaken the pillars of economy even in mighty economic countries like America. As I have understood from the articles, high inflation is the root cause of economic recession and unless the economists who are guiding the Government in financial matters suggest timely corrective and preventive actions, inflation may end up with recession. Impact of inflation will be felt by consumers when they go for shopping where they will have to spend more than usual. In other words, you can see a decline in purchasing capacity of currency and either you need to spend more money for buying a particular product or buy lesser quantity to maintain your monthly budget. If the inflation rate remains high for longer period, more and more people are forced to bring down their buying quantities. I think, this is the first step of recession. When people think twice to spend a dollar even for day to day usable products, economic activity starts declining and we are entering a phase where supply will be more than demand. At this stage, manufactures are forced to reduce their normal production and subsequently start using lesser man power by laying off remaining people. As income opportunities are becoming lesser and lesser, people who have taken loans from banks and other lenders including through credit cards, find it difficult to pay the monthly installments. I heard that, some people have taken home loans from more than one banks for the same house and such people lost their home within few months. The sad part of the whole story was that, in some cases as many as ten loans were obtained from different financiers for a single property and I am still unable to digest this news. Financiers who have liberally distributed loans without proper scrutiny have become bankrupt and stooped their activities. This is one of the reasons for the closure of many financial institutions during the recession period in different parts of the world. Millions of house owners who were enjoying home loans have become homeless because of their inability to pay back the loan amount and its interest. There are many other smaller reasons which are contributing to the recessions and I will try to analyze them on my own way in the coming days.

1 Comment:

iamNoOne said...

Just last year, my one month salary is more than enough for me. This year, I felt the effect of this recession. I hope that for the coming 2010, the world's economic will be stabilized again.

Following your blog.