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Amit - can u please EMBED THIS? else its makes no sense as a 'discussion'

 

@ Alok - Pls reply, Is it OK now ...

Good One Bhai........

Parameters of Economy has changed now..............Its not based only on Keynesian Theory of Demand and Supply, but also on mood. Which you rightly pointed out.

@ Gurpreet - Thanks...

Hi

Recession in the US was triggered by the sub prime crisis. 

Smart bankers (for sake of bonuses?) found new customers (who had no hope of repaying) to lend to at higher interest rates. These loans were further re packaged and sold to other people/institutions around the world. 

The price of the financial asset, which is the loan, depends on the prompt repayment by the loan holder or the underlying asset which is the house for which loan was given.

The loan holder did not repay because he did not have the ability or willingness to pay (maybe never had - but such loans were given due to poor controls). Since many people had taken loans and now did not bother to repay, banks started repossessing the asset (house) and put them up for resale.

As more houses flooded the market, the price of the houses went down. So the price of financial asset went. Since the financial world is interconnected, many companies got affected. 

Since banks had to write down the NPAs, credit got squeezed and industries like automobile (which work on credit - who buys a car with full cash down?) stopped.

Automobile industry has a huge effect on the economy because a car requires so many ancillaries. So cars were not bought, employess in the fords and its ancillaries were laid off.

This led to a downward spiral that led to the recession.

Comments welcome.

Suresh Jayanthi  - if you observe it's all ' State of Mind" effect....

Human stupidity, we call it

The only true indicator of a good economy is HDI (Human Development Index).

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