22000 job cuts in January, 63000 in February in US... What lies ahead.... Surely we are skidded into Recession... Worst fears are coming true...
"The question appears no longer to be are we going into a recession but how long and deep it will be," said economist Joel Naroff of Naroff Economic Advisors Inc in Holland, Pennsylvania.
It all started with Subprime lending hitting the US banks hard..
Subprime lending is a general term that refers to the practice of making loans to borrowers who do not qualify for market interest rates because of problems with their credit history or the inability to prove that they have enough income to support the monthly payment on the loan for which they are applying. The word Subprime refers to the credit-worthiness of the borrower (being less than ideal) and does not refer to the interest rate of the loan. Subprime loans or mortgages are risky for both creditors and debtors because of the combination of high interest rates, bad credit history, and murky personal financial situations often associated with subprime applicants. A subprime loan is one that is offered at an interest rate higher than A-paper loans due to the increased risk.
Subprime lending is a general term that refers to the practice of making loans to borrowers who do not qualify for market interest rates because of problems with their credit history or the inability to prove that they have enough income to support the monthly payment on the loan for which they are applying. The word Subprime refers to the credit-worthiness of the borrower (being less than ideal) and does not refer to the interest rate of the loan. Subprime loans or mortgages are risky for both creditors and debtors because of the combination of high interest rates, bad credit history, and murky personal financial situations often associated with subprime applicants. A subprime loan is one that is offered at an interest rate higher than A-paper loans due to the increased risk.
Many banks, mortgage lenders, real estate investment trusts (REIT), and hedge funds suffered significant losses as a result of mortgage payment defaults or mortgage asset devaluation. As of March 3, 2008 financial institutions had recognized subprime-related losses or write-downs exceeding U.S. $170 billion.
This crisis hit the stock markets worldwide resulting in huge losses to investors... This crisis has started affecting all sectors.. Oil crossing 100 $ per barrel has added to the woes of countries especially developing countries like India and China...
US is a big consumer market for Asian countries.. When it skids into recession it will have a obvious impact on the revenues of Asian firms who are more exposed to US than other countries. Most of the IT companies in India are dependent on US market. Some major firms have started diversifying into Europe and South America but one cannot ignore the impact of a US recession on these IT firms.
Inflation has crossed psychological barrier of 5 % . Stock market sentiments are at an all time low. Central banks are trying to increase consuming power by reducing interest rates on bank deposits. It is one way of boosting consumption. Banks should look to reduce interest rates on housing and auto loans as well so that it boosts these sectors.
US Recession is here to stay and will definitely leave its impact worldwide.
4 comments:
Sir!! A nice topic to write a blog on!! and a nice way of presenting it! the blog header is really eye-catching! I got a chance to comment on ur work for the 1st time!! :)
regards
DEEPAK K
VI ISE
it is very useful article to know about subprime crises
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