Current Crisis Impacted Financial Market Real Economy Everyday Lives

¶ … Recession

Effect of the recession on upon financial market, the real economy and over everyday lives

Recession is defined as the economic slowdown or decline characterized by slowing down of trade, a magnitude decline in the GDP, and a decrease in employment usually lasting between 6 months to a year. This was the situation in the U.S.A. The hardest times being from 2008 through 2009 and the early months of 2010. America is still recovering from the effects of the recession that the country experienced from 2007 to 2009.

The slow down in economy triggered a massive job loss and unemployment rates that shot through the roof, the prices went up and a great deal of uncertainty rippled through the country. This situation has now seen a reverse trend albeit at a slower rate than was expected by many. The unemployment rate in November 2011 fell by 0.4% to 8.6% unemployment as the nonfarm payroll employment climbed by 120,000.

This was the situation in the U.S.A. The hardest times being from 2008 through 2009 and the early months of 2010. All this is however now changing since by 2009 the GDP was at -6.8% and now it has appreciated to 2.8%. This can be located as a positive sign though there is still much to be covered in terms of restoring the country to the previous economic situation through the assistance of the Federal Reserve and the Congress.

The areas that have seen significant employment rise are retail trade, hospitality, leisure, health care as well as professional and business services (U.S. Department of Labor, 2011). This was accompanied by an inflation rate of 3.5% as at October 2011, still slightly higher than the average American inflation rate of 3.38%. This is on the back of increased indexes for food and energy which was also the reason behind the seasonally adjusted all items increase (Trading Economics, 2011).

The currently reported GDP growth rate on the annual basis after the adjustments for the inflation is pegged at 2.8% as at 2010 (Index Mundi, 2011) up from -2.6% in 2009. The U.S.A. budget deficit in 2010 reached nearly 9% with the total revenues that the government collected from taxes and other sources remained low as a percentage of the GDP as compared to that of any other developed country.

From the figures hitherto, it is true that though the place may be slower than expected by many, there is recovery taking place. The U.S. Federal Reserve System has strived to create an atmosphere that facilitates the sustenance of low interest rates by the banks so as to encourage the borrowing from banks to continue as was before, this is followed by discouraging short-term lending rates as this could dampen borrowing and resulting in a slowed down expansion.

Effects of the recession in America

The effects and lessons that came as a result of the recession were very similar to those experienced by America during the great depression. This was a time in history that saw a down turn in the economy of the world with places like the U.S.A. And Europe being significantly affected. The stock markets went to an all time low and majority of the banks had to close in line with the heavy economic burden that was experienced then. More people withdrew their money from the banks with fears that the bank could go under with their money hence the wider spread of the bank closures.

During the depression people were left with no options to satisfy their basic needs and at the same time providing people with options to adopt in order to survive through the tough economic times as indicated by Browder, Laura, (1998). These tough economic options drove majority of the Americas to learn how to share the few resources and supplies that were among them, a fact that bordered on communism.

These were hard times when there was little in terms of trade that the Americans could constructively engage in and this idleness was compounded by the loss of jobs and the bad weather that came with the economic depression. This left many Americans with only one option, that of writing in order to express their feelings and frustrations at the depression. The writers that inclined towards the leftist ideologies were more appealing to many Americans due to the general dissatisfaction with the goings on.

There are several similarities that were experienced by the Americans in the recent recession and by Americans in the 1930s great depression. These effects that were experienced during the great depression cut across the stock market and the banking system, the general economy as well as the daily livelihoods of the Americans, in a manner similar to the recession as discussed below.

Recession and the financial Markets

Amitabh Shukia (2009) notes that the decrease in the stock market meant that investments suffered a great deal and especially the industrial production as the investors in such sectors avoided investing in companies that might make losses in the recession period. It is worth noting that the bigger companies were able to withstand these effects but the smaller companies actually closed shop and some suffered a great deal.

The banks however did not experience closures are was in the depression since the Federal Deposit Insurance Corporation that was instituted after the lessons learnt from the great depression gave investors in the banking system and the depositors the confidence to stay put. Doug Gentry (2011) indicates that part of the reason why people are confident in depositing their money with the banks is because of the faith and confidence that they have in them. This confidence was inculcated into people with the creation of the Federal Deposit Insurance Corporation (FDIC) in 1933 after the great recession when people withdrew all their money from banks and refused to re-deposit it for fear, insecurity and lack of trust in the banking system.

The FDIC is an insurance that covers the banks, such that incase a bank goes under then all depositors will be refunded their money up to $250,000 each. This is one fundamental reason why during the recession people had confidence in the banks and would not mind leaving their money with the banks. since banks cannot be easily rendered insolvent due to the insurance by FDIC, depositors have the confidence to let their deposits accrue interests with maximum safety rather than retrieve their money from banks and expose it to insecurity. With this confidence the clients to banks have some confidence that the banks are not going to be wound up any soon and work on presumptions that banks are here for the long run.

Banks do not let customers know when they are in crisis which is usually in bid not betray the confidence customers have in them. Banks do the best they can in bid to appear financially stable in the sight of the public. This helps them to win confidence from people and thus helps explain why customers do not rush to retrieve their funds even in instances that banks might be financially constrained or even in financial hardships like the recession recently experienced.

The recession also brought with it disguised blessings to people who intended to invest for the long run and the future. Since the prices of shares in the stock market drastically fell, many people took this chance to buy the shares with the focus that it could appreciate in the coming years.

Recession and economy

There was a general effect on the international brands and the local brands during the recession. A lot of businesses were affected since there was absolute change in the lifestyle of most Americans. For instance the air travel companies were greatly affected since many people hitherto were accustomed to travelling during the holidays for leisure and visiting relatives. However this changed in 2009 when the recession hit hard and many opted to abandon their social lifestyle and deal with the basics only hence affecting the airline's operations as noted by Sky News (2009). This was the same trend with other kinds of business especially those that were more bent towards leisure and secondary goods. The Americans opted to concentrate on the primary goods and as a result affected the economy of the country.

Recession also resulted in the decrease in the consumer spending hence a drastic reduction in the sales of various enterprises. This is an effect that those businesses dealing in non-essential goods feel most as the consumers concentrate on the essential goods alone as the availability of money does not allow them to go beyond the essentials into luxury spending. With this decrease in consumption, many investors ad even the foreign investors will opt to keep out of the regions mostly hit by the recession trends. The other scenario that emanated from the recession in line with the consumer spending is that even if the seller might be able to maintain the sales, there is bound to be a decrease in the profit margins, forcing most investors who maintain their enterprises to device alternative means to attract the customers to their businesses (Khera Communications, (2011).

Recession as well affected the economy of individuals and of the country in that the competition got tougher and fiercer than before the recession. This competition was fuelled by the larger number of competitors going for the same remaining small market share. This also resulted into weaker competition at the long run where come businesses that could not keep up with the competition gave in and closed shop. Generally the purchasing power of people came down and goods got harder and harder to sell than before the recession.

It is worth noting that the recession came with price inflation. This meant that the expenses of the household increased significantly even with the sales or family businesses coming under increased pressure. This then made the business owners to concentrate more on the expenses that are directly linked to the businesses.

The other effect of the recession on the economy was on the unpredictable nature of the businesses that set in as the fluctuation in the commercial goods set in. Businesses experienced periods of no clients at all at their doorsteps and yet some times there were floods of them into their floors. This made it hard for most businesses to have a concise plan and strategy for a long period of time.

The other irony that was experienced in the economy was that despite the lowering of the interest rates by the banks, there were high standards for one to qualify for the loans. This was caused by the liquidity crunch that hit the monetary market hence many people who intended to take loans faced very tough qualification standards.

For the business owners and employers, there was the dilemma of employees asking for more salaries due to the higher prices of goods and the biting economic downturn. This is one of the reasons that made many employers to let go of their employees in order to retain the very significant employees at the same payroll levels or a slight increase.

The recession inevitably led to the increase national debt. This was as a result of the inability of the government to spend any more money in developmental activities as it concentrated its energy towards bailing out companies that were going under. Some of these institutions were banks where great amounts of taxpayer's money were diverted to give the banks a boost in order to survive the recession.

According to the Investopedia (2009), the effect of the economy on both the large and the small companies is that there will no longer be any new product rollouts in light of the dwindling purchasing power and purchasing trend of the consumers of the goods that are already in the market. This was the case in the recession in the U.S.A. As well, many companies held back their new products that they could have launched is the conditions were right for fear that the launching in such a hostile environment could result in poor performance in the market and as a result embed on the product a negative market image for the rest of its shelf life.

The recession also meant that the investors or shareholders in some of the businesses had to forfeit their dividends or do with a radically reduced amount and go for a year or more without the dividends. This upset the finances of many who opted to sell out their shares and invest the money elsewhere.

On most companies, there was a great deal of credit impairment and bankruptcy brought about by the recession. Since the flow of money into the company was greatly distracted by the slow sales and remittances of debts owed to the company, this meant that the companies also had to be late in paying for their creditors agreed amounts per month, this then ended up making such companies' credit worth to be reevaluated. Because of the debt reckoning, it became harder for such companies to get further financing from financiers and even the terms and conditions of the repayments they had been making had to be renegotiated.

One other effect that the recession had on the economy was the compromise of some goods and services that were offered by various companies. This was all in the effort to cut down the production costs or cost of service and still maintain the employees within the organization and the payments. This was particularly seen in the airlines services where some withdrew the reading materials on board, some did away with the head pillows and such measures. Some airlines installed more seats hence restricting the led room of the passengers so that they do not increase the fares. Some routes were terminated due to their low profitability during this recession. The goods industry was not spared as well since one could get lesser quality beans in the coffee hence compromised flavors and the fast foods and food suppliers also cut down on the quantity they delivered fro the same price (Independent Traveler, 2012).

Firms were also impacted greatly terms of the advertising and marketing sector. There was a great squeeze on advertising agencies ass a result of the firms lowering their advertising ventures with an aim of moderating their expenditure. This reduction in advertising affected all the media from print to online and even the broadcast. This lower advertising meant that there was lesser consumer confidence and therefore consumer spending also dropped significantly.

Recession and the daily livelihoods

One of the effects that the recession brought to the family setting is the social structure and coexistence among the family members. As financial hardship level rise, tension and conflict level also rise among the family members. The problem of unemployment resulted to stress and conflict in the family as couples lost their jobs and the children needed to continue with their normal social and academic livelihoods. These unwavering demands on the background of a grossly reduced income resulted in stress and strain bestowed on the parents or the bread winners, the stress then resulted in disputes.

The recession triggered mass layoffs and unemployment. These layoffs in return triggered the pressure groups and human rights watch groups to come across claims of partisan trends in the layoffs. Several cases of disproportionate layoffs in America have been reported though the onus has been upon the courts to determine whether they were driven by racist notions or economic factors (International Socialists Review, 2003), the society was once more faced with the contention of racism and partisan considerations when laying off employees from some of the big organizations that suffered in the recession.

During the recent recession in the U.S., families suffered due to massive loss of jobs, lost houses on mortgages, had lesser money to spend and they were surrounded by soaring prices on even the most basic and primary needs of families. The situation meant that families had to cut on the spending habit, look for the cheapest alternative to everything and most significantly here is the absolute adjustment in the social lifestyle. This was a situation that went as far as the CEOs of big companies that needed bailouts subsidizing their lifestyle and comfort of travels (Zogby, J., 2010).

Personal budgets were also affected by the recession in that in some organizations, the management and the employees had to sit and come to a concession. This was a concession to save the company as well as saving the jobs that were hanging on the balance. This was majorly done through agreeing to cut down on the wages and the allowances and reducing other benefits that employees took home. Some manufacturers were actually forced to halt production of some brands that were poorly performing and this was widely seen among the automobile manufacturers.