It's a question that many are asking... Why is this a Credit Crunch, Why not just call it recession??The answer is simple, there is a very precise definition of recession - there is no official definition for a Credit Crunch - and in fact we are not (yet) in recession. There is little doubt that we will be, but the exact deifintion says that a country's GPD (Gross Domestic Product) should be in decline for two consecutive quarters. This is not yet the case.
Recession can be just a national event if the decline is only recorded in one country since each country natuarally has it's own GDP, and some countries may not even record any decline at all. It is not uncommon to see cuts in interest rates in this economic climate in order to stimulate the economy by stimulating investment. Dropping interest rates has two effects:
- Those that need to borrow to boost their business activities can borrow at an advantageous rate.
- Those that have money to invest may be more prepared to invest in risk ventures whilst bank rates are low.
A recession normally lasts anything from 6 months (two quarters) up to eighteen months (six quarters). The Credit Crunch is already here, but once the GDP begins to rise and we officially emerge from recession, no doubt the Credit Crunch will be declared defeated too...
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2 comments:
Hello, as "thoughts become things" the general consensus is that we are currently in a recession and therefore it will become a self fulfilling prophecy.
The papers still seem to have much more control on the UK pysche than they are given credit for.
Certainly the general market behaves that way, GDP is a little remote from that but still subject to the 'confidence factor'. I agree that we can be talked into a recession, but we are also due a recession too - the govt have been busy trying to talk us out of it, but to no avail...it's part of the cycle, the more you try to put it off, the worse it will ultimately get (IMHO...)
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