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FINANCIAL MELTDOWN AND ITS RECOVERIES: A CASE STUDY OF INDIA Dr. Neeru Chadha (Associate Professor), PG Department of Commerce and Business Management, BBK DAV College for Women, Amritsar-143001 (PUNJAB). Email: [email protected] ABSTRACT This study traces out the genesis of Global recession and evaluates its impact on Indian Economy. The root cause of crisis is the building up of global imbalances. The origin of this crisis can be attributed to large subprime lending in USA due to several factors like uncontrolled lending, securitization and promotion of housing finance by government. Most of the countries witnessed this crisis in the form of recession but India experienced least. Global crisis has led to stock market crashes, panic in Indian banking system, currency collapse and decline in export market. The slow pace of financial reforms taking place in India, careful approach towards foreign investments in Indian business sectors, frequent technical obstacles and regulatory control have turned out to be beneficial for India and helped it to escape from adverse affects. Numerous steps have been taken by RBI to stabilize the economy, as a result of which the economy has started gaining ground. 1 INTRODUCTION In the era of Globalization, no country can be isolated from the fluctuations of world economy. Heavy losses suffered by international banks were affected all countries of world. The collapse of the Bear Stearns1 was a lead up to the meltdown in September 2008, and then followed by Global financial crisis and recession. Bear Stearns pioneered the securitization and asset-backed securities markets, especially the mortgage-backed assets that were pivotal to the subprime mortgage crisis. The condition became more worsen with the failure of Lehman Brothers on 15 September 2008. Problems in mortgage and credit markets spilled over into interbank money markets from mid-September to late October, there was collapse of the financial system and guided many countries to face a severe meltdown in economy. This crisis led to drastic change in the world economy, the global financial system and for the central banks. GENESIS OF GLOBAL CRISIS Global Recession is not a new phenomenon for whole world. The cause of the crisis was the bursting of the United States housing bubble which highlighted in approximately 2005–2006. There was collapse in housing market. There are three categories of mortgages: Prime mortgage, Subprime mortgage, Alt-A mortgage. Prime mortgages are normal mortgages given to normal borrowers who have strong income and decent creditworthiness. These borrowers also known as Prime Borrowers and they provide full documentation of income, assets and liabilities. Subprime mortgages are more risky than earlier one. Subprime lending is a kind of lending to borrowers who might not qualify for a loan because of unstable incomes or low creditworthiness. These borrowers are also known as Ninjas. Ninjas mean no income, no job and assets. Alt-A mortgages fall between Prime and subprime mortgages. They are borrowers with good credit history, but who provide lower documentation to support the loan or who make payment less than 20% of down payment.2 The origin of this crisis can mostly be attributed to large subprime mortgage lending. The banks were eager to earn more profits and moreover banks know that in case if borrowers were not able to make payment, they could sell the houses at higher price due to appreciation. Hence, they had increased the mortgaged interest rate and call it as a Subprime mortgage. They also knew that they did not have to carry these bad loans in their books as to 1 Bear Stearns was one of the largest investment banks and in September 2008 takeover by JPMorgan Chase, is one of the Big Four Banks of the United States with Bank of America, Citigroup and Wells Fargo. 2 http://2008financialcrisis.umwblogs.org/analysis/the-subprime-mortgage-market/ 2 offshore the balance sheet, they could transfer the default risk to financial institutions all over the world. On the other hand, borrowers thought once they purchased the house, then in future, value of house would went up and they could sell it, thus all debts could be easily paid off. Eventually when the economic cycle got reversed and asset prices decreased, the value of mortgages also went down. The interest rates on mortgaged loans were increased by banks to cover losses. But borrowers failed to pay their monthly loan payment due to increased interest rate as there was also situation of credit squeeze which led to more poor condition, as a result of this, borrowers could not take fresh credit, so they might have to surrender their homes.3 Asset backed securities did not worked in this situation because the underlying assets behind the securities were now worthless. Liquidity dried up and led to credit crunch. So, banks stopped the subprime lending and also interbank lending as they were afraid of losing money because they lend money to banks which were also exposed to subprime loans.4 QUICK REVIEW OF TIMELINE The current recession which affected the whole of world, is not a new phenomenon. World earlier also faced this phenomenon. (See Appendix: Table 1) THE GLOBAL CRISIS An economic recession is primarily attributed to the actions taken to control the money supply in economy. Usually, central bank of every country is responsible for maintaining the balance between money supply, interest rates and inflation. So, to curb inflation, proper balance has to be striked out to restrict bank rates, so that it will not lead to credit crunch. When delicate balance is tipped, the economy is forced to correct itself. Some times, central bank smoothen the money supply in money market. This helps to keep interest rates low, even if inflation rises. Inflation is the rise in prices of goods and services over a period of time. Higher level of inflation leads to fall in purchasing power of consumers. Hence, people are restricting themselves from spending money on luxury items. In simple, people now want to save more and spend less. People and business are looking forward to different ways to cut costs and spend less on expenditures. Companies will start retrenching workers in order to cut down cost. Hence GDP begins to decline. All these factors combine to drive economy into state of recession.5 3 http://financialindependent.blogspot.com/2008/01/simple-way-to-explain-subprime-crisis.html http://www.highbeam.com/doc/1P3-1581306071.html 5 http://recession.org/definition 4 3 The causes of current Global Recession are: Housing finance and securitization of mortgages: Federal Housing Administration (FHA), Veterans Administration (VA), Fannie Mae, Freddie Mac were those entities created by US Government for promotion of home ownership making mortgages available. Securitization eliminates uncertainty and allows the risk to be price through higher interest rates. Firms who were engaged with mortgage business know that they could reduce the overall risk because of pooling system. So, this was the way how Fannie Mae, Freddie Mac expand the mortgage market. By the end of 2008, the US mortgage market had $14.6 trillion outstanding of which $7.6 trillion was mortgage-backed securities, including $5 trillion held or guaranteed by Fannie May and Freddie Mac, and $2.6 trillion in held by private entities. An additional $5 trillion was held as individual mortgages by commercial banks, thrifts and life insurance companies. The remainder of the $14.6 trillion in mortgages was held by various government agencies and individuals as individual mortgages6. Subprime mortgage market: This market includes the business of subprime mortgages, subprime auto loans and subprime credit cards, as well as various securitization products that use subprime debt as collateral7. The Shadow Banking System: A major player in the Collateralized Mortgage Obligation (CMO) market was Shadow Banking System. It is a collection of financial institutions including investment banks, hedge funds, money-market funds, and finance companies, as well as newly invented entities called “asset-backed conduits” (ABCs) and “structured investment vehicles” (SIVs). As shadow banks are not part of the formal commercial banking system, so they are not entitled to same strict regulations as other banks. On April 28, 2004, the US Securities and Exchange Commission waived the net capital rule for the largest investment banks: Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch, and Morgan Stanley. Shadow banks were estimated to provide as much as 60% of total lending while commercial banks only 40%. The collateralized mortgage obligations sold by these shadow banks were similar to the mortgagebacked securities sold by Fannie Mae and Freddy Mac. The CMOs were sold in tranches (or 6 7 http://2008financialcrisis.umwblogs.org/analysis/housing-finance-the-securitization-of-mortgages/ http://www.investopedia.com/terms/s/subprime_market.asp 4 slices) to investors based on the investors’ risk preference. These CMOs were sliced into three tranches: top, middle and bottom. The mortgage payments were accumulated each month would go to top tranche. When enough money collected, the top tranche’s interest payments were paid. The next mortgage payments were allocated to the middle tranche. When its interest payments were paid, the remaining mortgage payments went to the bottom tranche. If any mortgage holders failed to make their payments, the shortfall would apply to the bottom tranche. To compensate for this possibility, investors in the bottom tranche were paid a higher interest rate. The upper tranches were rated AAA by the bond rating agencies; thus, perceived to be safe investments.8 The Collapse: The financial crisis was the result of the collapse of a bubble in the US housing market which had formed in the early 2000s. There was the collapse of the housing bubble. Investment growth in residential housing measured to near zero in late 2005. The first quarter of 2006 saw a 3.6% decline, and another 16.6% dropped in the second quarter. Residential investment showed a 22.8% decline in the fourth quarter of 2008 and a 32.8% declined in the first quarter of 2009.9 The Credit Crisis: When businesses found difficulty in raising loans from market because of liquidity dried up, this led to credit crunch in market. A credit crunch is an economic condition in which investment capital is difficult to obtain. According to many economics experts, one of the reasons which lead to a credit crunch is a sustained period of careless and inappropriate lending which results in losses for lending institutions as well as investors in debt.10 So, to make payment of earlier loan borrowers could not take the fresh loans from the market. Even by this condition interbank transactions were stopped because every bank had severe subprime loans. IMPLICATIONS ON WORLD ECONOMY This Financial crisis spread to whole of the economy in the form of recession. This recession was noticeable in late 2008 but it started very earlier. The broadest indicator of economy is GDP 11. The aggregate demand consistently exceeded domestic output which led to current account deficit in US. Table 2 indicates current account balances of different countries. (See Appendix: Table 2). 8 http://2008financialcrisis.umwblogs.org/analysis/the-shadow-banking-system/ http://2008financialcrisis.umwblogs.org/analysis/the-collapse/ 10 http://www.buzzle.com/articles/what-is-a-credit-crunch.html 11 GDP=consumption expenditure (C) +investment expenditure (I) + government expenditure (G) +expenditures on net exports (NX). 9 5 The large domestic demands of US were met by rest of the world especially China and other East Asian economies. These countries provided cheaper goods and services to US and also helped to maintain price stability in US (Taylor, John (2009)). Generally there was a misconception that US tighten the monetary policy which led to recession. But this was not the cause. It was collapse of housing bubble. The main implications of this recession are: Rising in Unemployment: This decline in housing market spilled over into the labour market in late 2007. The unemployment rate was at 4.4% in October 2006 and began rise in December 2007. Over the next three months, the labour force dropped out. By May 2009, the unemployment rate had reached 9.4%, the highest it had been since 1983. Personal Consumption Expenditures: Total Personal Consumption Expenditures began falling in the third quarter of 2008 with a -3.8% change which worsened to a -4.3% change in the fourth quarter. The majority of decline was occurred in the market of Durable goods which turned negative in first quarter of 2008 and snowballed to -22.1% in the fourth quarter of 2008. Nondurable Consumption had also declined beginning in the third quarter of 2008 with a -7.1% change and continuing into the fourth quarter at -9.4%. Non-durable consumption is largely a function of income. Services showed negative in the third quarter of 2008 at -0.1% turned positive again in the fourth quarter of 2008, clocking in at 1.5%. In the first quarter 2009, total consumer spending increased showed 9.6% growth in consumer durable spending. Export and Import: During the period from the fourth quarter of 2005 to the second quarter of 2008, export growth averaged nearly 10% at an annualized rate. As recession became a global phenomenon, the world demand for American exports declined. In the third quarter of 2008, export growth slowed and dropped to 23.6% in the fourth quarter. This jump down accelerated in the first quarter of 2008 with 28.7% decrease. US import growth peaked in late 2005, turning negative in the fourth quarter of 2007, spreading the decrease in demand globally. Imports saw decline in the fourth quarter of 2008 at -17.5%. This decline had accelerated to nearly 40% in early 2009. US Government spending: US government spending had not played a large role in the current recession. Substantial decline in federal defense spending in the first quarter of 2009 caused a noticeable 3.5% decline in total government spending.12 12 http://2008financialcrisis.umwblogs.org/the-recession/ 6 LINKAGE OF AMERICAN ECONOMY WITH INDIAN ECONOMY: The current collapse of USA can be witnessed all over the world. It has been an extraordinary collapse of American economy. The effects of American crisis can be seen on European and Japanese economies. Indian economy is no exception to this rule but India is far more fortunate. The slow pace of financial reforms taking place in India, careful approach towards foreign investments in Indian business sectors, frequent technical obstacles and regulatory control have turned out to be beneficial for India and helped it to escape from adverse affects. 13. Its impact on Indian economy is as follows: Impact on the Indian Banking System: There was no direct impact on account of direct exposures of subprime market to Indian banking system. But few Indian banks had invested in collateralized debt obligations (CDOs) which had few underlying entities with subprime exposures (Rakesh Mohan (2008)).Even interbank lending had been slowed globally, because banks were lending at higher interest rates which led to expensive credit. Impact on the Real Estate Market: This sector was already under pressure as RBI increased the interest rates to restrain inflation. Further RBI restricted the real estate to raise money through FCEB route. The investment banks had given huge amounts of money to real estate companies for development projects. With the large investment banks going bankrupt, the projects have to be discontinued, leading to the slump in the real estate market as well. Impact on Exports and Employment: The worldwide financial crisis had caused up to 70 percent fall in India's exports. Handicrafts exports fell by 70 percent. Other sectors like tea and carpets were also down by 20 percent and 32 percent, respectively. Overall export growth went down to just over 10 percent from 26.9 percent. Bulk cargo shipping rates had also come down by nearly 50 percent. As inflation rate was on the peak at that time, business men started to retrench employees in order to cut down the cost which led to increase in unemployment rate Impact on Stock Market: The investment in Indian firms by Lehman Brothers and Merrill Lynch & Co’s were major worry for Indian investors. Indian stock market had seen its worst time with the global financial crises. Mostly all the industrial sectors experienced a consistent low in their stock prices. The IT sector had been badly hit. The IT companies have these investment 13 http://www.mumbaispace.com/economics/impact-of-us-recession-in-india.htm 7 banks as their clients. Indian stock market crashed from the high of 20000 to a low of around 8000 points. Rupee Value: Rupee value against the US dollar has weakened completely One reason might be the foreign fund inflow into India. Financial institutional investors have deleveraged globally. This net FII flow has been the single most important reason for the Rupee's fall. The US Dollar has been the world's reserve currency for several decades now. The Rupee's fall against other major currencies has been less pronounced, as seen in the Figure below Source: Financial Crises: A Cascading Effect on India by Madhuri Malhotra RECOVERY FROM SHOCK TO STABLE ERA: Mr. Zoellick, president of the World Bank, expressed that the global crisis needs a global solution and preventing an economic catastrophe in developing countries is important for global efforts to overcome this crisis. India though act very stably but still cannot keep itself aside from such shocking state but now economy has moved towards recovery stage. Following are the few recovery measures adopted by government: 8 Growth in GDP: In a country where 70 per cent of the population live on less than Rs.20 a day, raising purchasing power of the people should be the first thing in the New Deal. Otherwise the economic turmoil could lead to widespread social turmoil and disturbances (Markandey Katju). The growth in GDP has improved significantly in 2010-11 at much faster rate than expected but problem of global recovery still persist. As a result RBI first revised upward its GDP growth in 2010-11 to 8% but again it has reduced its projection to 7.6% for 2012-13. Policy measures: To resolve economy from such pressure both central government and RBI join hands and introduce huge fiscal packages to stimulate domestic demand and to recapitalize banks. But the problem does not end over here. Depriciating rupee value is adding to the problem and only measure of recovery is to increase foreign inflows and tightens regulatory measures.14 Recovery in Indian banking system: RBI has taken bold steps to raise liquidity by reducing CRR, SLR, Repo rate and Revese Repo rate by 0.5%, 1%, 5.25% and 2.75% respectively which is a big move towards saving economy from such disastraous state (Deepak Mohanty (2010)). RBI has even raised the limit of FIIs investment in corporate bonds from $3 billion to $6 billion (Dr. V. Basil Hans (2009)). Recovery in employment: No doubt companies have reduced its pay packages due to crisis but still providing ample opportunities to job seekers and jobbers. The need of hour is to go for the placement not for the pay so that unemployed can add to progress of the economy instead of being burden on economy. Recovery in real estate: Though real estate sector has got big hit due to bursting of housing bubble. Now this sector is also showing an upward trend as real estate dealers are now attracting cutomers by offering luratic schemes like increasing EMI on flats, offering free cars etc so as to boost up real estate business. 14 http://articles.economictimes.indiatimes.com/2011-12-18/news/30531096_1_fiscal-deficit-currentaccount-deficit-budget-estimate 9 CONCLUSION The Great Panic of 2008 is now seriously over-rated. If one manages to keep a balance and act logically, then not only he can minimize his losses and lay the foundations of making big profits in the future. But if he becomes part of catrace then he has to face loss and it will take years to get back good returns from investments. There are three main parts of the crisis: the Credit Crunch, the Economic Slowdown and the Stock Market Crash. Since Most of the economies are dependent on United States Economy. US Subprime loans are the major causes of 2008 melt down. Any economy is considered in a recession when there is 10% continuous fall in two financial quarters. In this period, many banks have faced bankruptcy and rate of unemployment increased. Downfall in international trade has been seen. RBI has reduced Repo rate (5.5%), Reverse Repo (4%), CRR (5%), SLR (24%) too boost up the economy. Most of the banks in India are trying to decrease rates on loans and increase rates on deposits to increase the circulation of money in economy. Following measures should be incorporated in order to maintain strongest position of economy: Economies must prepare themselves beforehand so that in time of crisis, they are well groomed to face the adverse situations Financial Companies and institutions should be borne in mind, before lending their money, the track record of the person. Risk management techniques should be improved. Government must take positive steps time to time to stabilize their economies 10 BIBLIOGRAPHY International Monetary Fund (2009c), World Economic Outlook Database, April Mohan, Rakesh (2007), “Global Financial Crisis and Key Risks: Impact on India and Asia”, downloaded from www.rbidocs.rbi.org.in/rdocs/Speeches/PDFs/87784.pdf on 29th july,2009 Taylor, John (2009), “The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong”, Working Paper 14631, January, National Bureau of Economic Research Malhotra, Madhuri(2008), “Financial Crises: A Cascading Effect on India”, downloaded from www.advances.mse.ac.in/making/Financial%20Crises%20madhuri.pdf on 28th July,2009 Katju, Markandey (2009), “Reflections on the global economic crisis”, The Hindu, Monday, March 9, 2009, p. 8. Kumar, Rajiv (2009), “Global Financial and Economic Crisis: Impact on India and policy response”, downloaded from www.data.undp.org.in/FinancialCrisis/FinalFCP.pdf. Mohanty, Deepak (2010), “Global Financial Crisis and the India Economy”, downloaded from www.unstats.un.org/unsd/trade/s_geneva2011/refdocs/CDs/India%20 %20Impact%20of%20financial%20crisis%20(Nov%202010).pdf Hans, Basil (2009), “Global Meltdown and India- Issues, Concerns and Challanges”, downloaded from www.papers.ssrn.com/sol3/papers.cfm?abstract_id=1375022 WEBSITES: http://2008financialcrisis.umwblogs.org/analysis/the-subprime-mortgage-market/ http://financialindependent.blogspot.com/2008/01/simple-way-to-explain-subprimecrisis.html http://www.highbeam.com/doc/1P3-1581306071.html 11 http://recession.org/definition http://2008financialcrisis.umwblogs.org/analysis/housing-finance-the-securitizationof-mortgages/ http://www.investopedia.com/terms/s/subprime_market.asp http://2008financialcrisis.umwblogs.org/analysis/the-shadow-banking-system/ http://2008financialcrisis.umwblogs.org/analysis/the-collapse/ http://www.buzzle.com/articles/what-is-a-credit-crunch.html http://2008financialcrisis.umwblogs.org/the-recession/ http://www.mumbaispace.com/economics/impact-of-us-recession-in-india.htm http://articles.economictimes.indiatimes.com/2011-12-18/news/30531096_1_fiscaldeficit-current-account-deficit-budget-estimate http://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States 12 APPENDIX Table 1 - Recessions and other Economic Crises Name Dates Duration Time since start Causes of previous entry Panic of 1797 1797–1800 3 years _ The effects of the deflation of the Bank of England crossed the Atlantic Ocean to North America and disrupted commercial and real estate markets in the United States and the Caribbean. Britain's economy was greatly affected by developing deflationary repercussions because it was fighting France in the French Revolutionary Wars at the time. Depression 1807–1814 7 years 10 years of 1807 The Embargo Act of 1807 was passed by the United States Congress under President Thomas Jefferson. It devastated shippingrelated industries. The Federalists fought the embargo and allowed smuggling to take place in New England. Panic of 1819–1824 5 years 12 years 1819 The first major financial crisis in the United States featured widespread foreclosures, bank failures, unemployment, and a slump in agriculture and manufacturing. It also marked the end of the economic expansion that followed the War of 1812. Panic of 1837–1843 6 years 18 years 1837 A sharp downturn in the American economy was caused by bank failures and lack of confidence in the paper currency. Speculation markets were greatly affected when American banks stopped payment in specie (gold and silver coinage). Panic of 1857–1860 3 years 20 years 1857 Failure of the Ohio Life Insurance and Trust Company burst a European speculative bubble in United States railroads and caused a loss of 13 confidence in American banks. Over 5,000 businesses failed within the first year of the Panic, and unemployment was accompanied by protest meetings in urban areas. Panic of 1873–1879 6 years 16 years 1873 Economic problems in Europe prompted the failure of the Jay Cooke & Company, the largest bank in the United States, which burst the post-Civil War speculative bubble. The Coinage Act of 1873 also contributed by immediately depressing the price of silver, which hurt North American mining interests. Long 1873–1896 23 years Depression The collapse of the Vienna Stock Exchange _ caused a depression that spread throughout the world. It is important to note that during this period, the global industrial production greatly increased. In the United States, for example, industrial output increased fourfold. Panic of 1893–1896 3 years 20 years 1893 Failure of the United States Reading Railroad and withdrawal of European investment led to a stock market and banking collapse. This Panic was also precipitated in part by a run on the gold supply. Panic of 1907–1908 1 year 14 years 1907 A run on Knickerbocker Trust Company deposits on October 22, 1907, set events in motion that would lead to a severe monetary contraction. Post-World War 1918–1921 3 years 11 years I Severe hyperinflation in Europe took place over production in North America. It was a recession brief but very sharp recession and was caused by the end of wartime production, along with an influx of labor from returning troops. This in turn caused high unemployment. Great 1929–1933 43 months 21 months Depression Stock markets crashed worldwide, and a banking collapse took place in the United States. Although sometimes dated as lasting until the Second World War, the US economy was growing again by 1933, and technically 14 the U.S. was not in recession from 1933 to 1937 Recession 1937–1938 13 months 50 months of 1937 The Recession of 1937 is only considered minor when compared to the Great Depression, but is otherwise among the worst recessions of the 20th century. Recession Feb-Oct 1945 8 months 80 months of 1945 The decline in government spending at the end of World War II led to an enormous drop in Gross Domestic Product making this technically a recession. The Post War years were unusual in a number of ways and this era has little in common with other recessions Recession Nov 1948– of 1948 Oct 1949 11 months 37 months The 1948 recession was a relatively brief cyclical economic downturn, the mildness of which led to confidence in the notion that the Post War-era would be a period of stronger growth. Recession July 1953– of 1953 May 1954 10 months 45 months After a post-Korean War inflationary period, more funds were transferred into national security. The Federal Reserve changed monetary policy to be more restrictive in 1952 due to fears of further inflation Recession Aug 1957– of 1958 April 1958 8 months 39 months Monetary policy was tightened during the two years preceding 1957, followed by an easing of policy at the end of 1957. The budget balance resulted in a change in budget surplus of 0.8% of GDP in 1957 to a budget deficit of 0.6% of GDP in 1958, and then to 2.6% of GDP in 1959. Recession April 1960– of 1960-61 Feb 1961 10 months 24 months After President Kennedy's 30 January 1961 call for increased government spending to improve the Gross National Product and to reduce unemployment, the 1960-61 recession ended in February. Recession Dec 1969– of 1969-70 Nov 1970 11 months 106 months The relatively mild 1969 recession is thought to have been mostly caused by the Federal Reserve raising interest rates to hold down 15 inflation. 1973 oil crisis Nov. 1973– 16 months 36 months March 1975 with high government spending due to the Vietnam War led to stagflation in the United 1973–1974 stock market crash 1980 A quadrupling of oil prices by OPEC coupled States. Jan-July 1980 6 months 58 months recession The NBER considers a short recession to have occurred in 1980, followed by a short period of growth and then a deep recession. Unemployment remained relatively elevated in between recessions. The early '80s are sometimes referred to as a "double dip" or "wshaped" recession. Early 1980s recession July 1981– 16 months 12 months Nov 1982 The Iranian Revolution sharply increased the price of oil around the world in 1979, causing the 1979 energy crisis. This was caused by the new regime in power in Iran, which exported oil at inconsistent intervals and at a lower volume, forcing prices to go up. Tight monetary policy in the United States to control inflation led to another recession. The changes were made largely because of inflation that was carried over from the previous decade due to the 1973 oil crisis and the 1979 energy crisis. Early 1990s recession July 1990– Early 2000s recession Mar-Nov 8 months 92 months March 1991 Industrial production and manufacturing-trade sales increased in early 1991. 8 months 120 months 2001 The collapse of the dot-com bubble, the September 11th attacks, and accounting scandals contributed to a relatively mild contraction in the North American economy. 16 Economic crisis of 2008 2007–present Ongoing 73 months The collapse of the housing market led to bank collapses in the US and Europe, causing the amount of available credit to be sharply curtailed, resulting in huge liquidity and solvency crises. In addition, record oil prices and food prices, stock markets crashed globally, and several high profile banking, automotive, and manufacturing collapsed in the United States Source : http://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States 17 giants Table 2: Current Account Balance (per cent to GDP) Country 1990- 1995-99 20002005 2006 2007 2008 94 04 China 1.4 1.9 2.4 7.2 9.5 11.0 10.0 France 0.0 2.0 1.3 -0.6 -0.6 -1.0 -1.6 Germany -0.4 -0.8 1.4 5.1 6.1 7.5 6.4 India -1.3 -1.3 0.5 -1.3 -1.1 -1.0 -2.8 Japan 2.4 2.3 2.9 3.6 3.9 4.8 3.2 Korea -1.0 1.9 2.1 1.8 0.6 0.6 -0.7 Malaysia -5.2 1.8 9.8 15.0 16.7 15.4 17.4 Philippines -4.0 -2.8 -0.7 2.0 4.5 4.9 2.5 Russia 0.9 3.5 11.2 11.0 9.5 5.9 6.1 Saudi Arabia -11.7 -2.4 10.6 28.7 27.9 25.1 28.9 South Africa 1.2 -1.3 -0.7 -4.0 -6.3 -7.3 -7.4 Switzerland 5.7 8.8 10.8 13.6 14.5 10.1 9.1 Thailand -6.4 1.0 4.2 -4.3 1.1 5.7 -0.1 Turkey -0.9 -0.8 -1.6 -4.6 -6.0 -5.8 -5.7 United Arab Emirates 8.3 4.6 9.9 18.0 22.6 16.1 15.8 United Kingdom -2.1 -1.0 -2.0 -2.6 -3.4 -2.9 -1.7 United States -1.0 -2.1 -4.5 -5.9 -6.0 -5.3 -4.7 Memo: Euro area n.a. 0.9@ 0.4 0.4 0.3 0.2 -0.7 Middle East -5.1 1.0 8.4 19.7 21.0 18.2 18.8 Source: World Economic Outlook Database, April 2009, International Monetary Fund (2009c). Note: (-) indicates deficit. @: 1997-99 18