Actual Reason for the current economic crisis

The longest recession was reported during 1873–1896 and lasted 23 years. This was due to the collapse of Vienna Stock Exchange .Post world war I recession however lasted only 3 years. Many like to compare the current recession to the one during the period 1929–1939 (10 years).

In simple words, Current economic crisis is due to utterly foolish financial strategies of US banks and Funds. There was a boom in real estate business in US. The land price was soaring each day. It was highly profitable to build or buy a new home. Your investment price will be giving excellent returns in a few months. This results in increased home loans. In the beginning, banks were cautious and provided loans to potential customers. These are called prime loans. For prime loans, customer should not have a bad credit record and should be in a position to repay the debt.

Economic crisis, who should be held responsible?

Now comes the real US style. More the money, more the greed. Banks wanted to exploit this situation and earn more. They started lending loans to non potential customers. These loans were called sub prime loans. The interest rate is high for these kinds of loans. Marketing agents working for commission were deployed to milk every opportunity. This resulted in loans to customers with bad credit record. All they cared was their commission. The banks were also happy as they get more interest. They thought it is safe as they can sell the property if there is a failure in repayment. This boom was noticed by financial institutions all over the world. They invested heavily in sub prime loans. Investments all over the world began to flow to this market. As result, more sub prime loans were given.

Economic recession – The D day

These people think that they are really smart. This made them ignore the basic rules of business. Excess flow of money resulted in excess availability of the groomed property. Now the demand is less and availability is high. Price begins to fall. For the Customers, the property value was less than the loan amount. As a result, they simply stopped paying their debts. All those funds who have invested in this field began to show a heavy depreciation of price.

Banks had put investor’s money in risk and they had no means of recovering it. This had a global impact as the fund came from all over the world. Banks have an internal system of cash transfer. Financial institutions with surplus capital lend their money to those with deficit. Now banks do not trust each other. They have no idea which bank is going to collapse. This results in a deficit of capital in market. Even the prime industrial customers are struggling for loans. This hindered their plans. No investment, no profit. No profit, no money for salary. This resulted in loss of jobs world wide.

Economic crisis – Impact on Indian Economy & Outsourcing

Indian economy mainly benefits from Exports and Outsourcing. They actually provide a support function. When US had a monetary deficit, ie, they had no money to buy. The industries depending on US orders came to a crisis. We depend heavily on Foreign Direct Investments. Financial institutions began to withdraw their money from stock markets. This resulted in a selling trend and drop in sensex. To send this money home, they need to convert it into Dollars. So they began to extensively buy dollars. This resulted reduction in value of Indian rupees. Investors panicked. They started looking for safe investments, which they found in gold. Gold prices started to soar exponentially. Gold prices are on a record value. This trend will sustain.

Economic crisis – Impact on Oil price & Middle east countries

This is aligned to the global reduction in oil price. No money, lesser production, lesser use of Petroleum products. This had a very bad impact of Economy of middle east countries. Many of them considerably reduced the production of oil to arrest a steep decline. Other major business in middle east countries, real estate and tourism were badly hit by monetary deficit. As most of the employees were from South Asian countries and they account for a considerable amount of foreign currency. These employees and respective economies were affected. The worst affected were those who depends on US economy. Japan the third largest economic set up in the world is in depths.

Economic recession – In simple words

When father falls ill, the family too face a crisis. You are saved if your mother has a job. Or you are not fully depended on US.

Solution for current economic crisis

One man’s trouble is another’s opportunity. Every economist in this world now dream of finding a solution and rise to fame. Many have already made claims. The problem is, many of them is making the same mistake as the authors of recession did. They are not ready to think from a different perspective. Temporary and may be the permanent solution for recession is to increase the flow of money into the market. As this is a vicious circle, money keeps draining from economy to safe assets like Gold, Platinum etc. Those institutions (both Government and Private) should have plans for a steady monetary channel.

In simple words, recession is lack of money. To overcome, we need to find money. The most unfortunate solution will be a war by US to get a better share of oil profit. Yes, it can be Iran. It is worth notice that the India is not heavily affected from the recession. This is really a good sign as export and outsourcing are a major source of revenue. The point that economists raise is the wide spread of nationalized banks in India. These bank's policies are controlled by government and has strict reservations on investing.

But the most likely success should be expected from something different. Someone is already working on this. Wait till it works.