Assignment 1 =Question No: 10 = Causes of Debt Crisis? Comment?

INTRODUCTION

Different people have different opinion and different definition of debt crisis but the most basic definition that all agree on is that a debt crisis is when a national government cannot pay the debt it owes and seeks, as a result, some form of assistance.

A debt crisis deals with countries and their ability to repay borrowed funds. Therefore, it deals with national economies, international loans and national budgeting.

DISCUSSION

Many people know what it feels like to owe money, even if they only want a building society for a mortgage. But it's a different matter altogether sometimes people are not able to repay it . And even worse to be in that situation if someone else ran up the debt and left you to carry it.

When individuals become deeply indebted i.e they are not in the position to repay it than they declare themselves as bankrupt,as a result bank dont have any option other than to take their property for which the loan had taken.

BORN IN THE USA

In the 1960s the US Government had spent more money than it earned and to make up for this decided to print more dollars. So the world's stocks of dollars fell in value.

This was bad news for the major oil-producing countries, whose oil was priced in dollars. The money they made from exports now bought less. So in 1973 they hiked their prices. They made huge sums of money and deposited it in Western banks.

BANKING ON THE FUTURE

Then the trouble really began. As interest rates plummeted, the banks were faced with an international financial crisis. They lent out the money fast, to stop the slide, and turned to the Third World, whose economies were doing well but who wanted money to maintain development and meet the rising costs of oil.

Banks lent lavishly and without much thought about how the money would be used or whether the recipients had the capacity to repay it. Third World governments, for their part, were pleased to take advantage of loans at very low interest rates - below the rate of inflation.

DICTATORS DEVELOPMENT

Some countries, like Mexico and Venezuela, took out loans to repay previous debts. But for others, this was the first time they had borrowed from commercial banks. Many intended to use the money to improve standards of living in their countries.

In the end, little of the money borrowed benefited the poor. Across the range, about a fifth of it went on arms, often to shore up oppressive regimes. Many governments started large-scale development projects, some of which proved of little value. All too often the money found its way into private bank accounts. The poor were the losers.

PROBLEM CREATED BY DEBT CRISIS:

RECESSION

Recession is not to be confused with depression. Recession means a slow down or slump or temporary collapse of a business activity. In its early stage it can be controlled in a methodical manner. Experience helps to avert total collapse. Unchecked, it leads to severe depression. Depression is a dead end. It is time to close shop completely. It is a total state of irrevocable economic failure. When a country is doing well all round its Gross Domestic Product (GDP) is on the rise.

RECESSION 2007 IN AMERICA

Americans are buying too many things based on credit. There are simply too many mortgages, credit cards, personal loans, car loans and it was only a matter of time before the economic downtown resulted in Americans not being able to pay for everything they buy. In the case of subprime mortgages it was the result of people buying houses on credit and it created a housing bubble as people bid higher and higher prices for houses.

CONCLUSSION

Now the quession which comes in the mind that what a common man can do at the time of recession? Most people tend to make the mistake of withdrawing from the fray rather than taking the risk. Go ahead and make the investment. It could be the biggest saver for your financial condition. If your research is right, you may be able to save despite spending during the recession. Just because there is a recession, chances are, there will be less buying and selling. But business will not come to a grinding halt. The real estate sector has seen the biggest upsets of the early recession. It is hard to tell where you can save. Pull and push will be inevitable in most markets. But it could be that the market you are investing in is not really doing so badly. You may stand to make a gain.

In economic slowdown only the stronger companies will have the ability to survive. And those who can innovate during this time are the ones who will drive the market forces.

You can save not only cash by also resourceful talent during the slump period.

Here is what that can be useful:

Don´t just fire anyone, loyalty pays.

Don´t stop the networking with the clients even if you are not doing business with them. When the time is ripe you don´t want them to ignore you.

Take some risk. Being afraid of failure will not be helpful. Avoiding it maybe harmful.

Go on launch the new product. The response will be slow. But when the markets are buoyant, they will pick up.

Don´t get too defensive.

Don´t stop the outsourcing of talent or consultancy. They will help to tide the difficult times.

Saving is not only in terms of liquid cash. Every member in the organisation is a family member. As the family stays through thick and thin, these are the times when it is safe to be together. Give the employees the incentives to save money even during this period. This saving will help them and you as well during the recession. Spend money during this period on garnering goodwill. Have an emergency fund scheme which will take care of at least six months during the period when the recession hits hardest. This gives time to cope up with the bad times and prepare for the next quarter

REFERENCES

MR.Charles Moffat

GLOBAL ISSUES

SUBMITTED TO:MR.GURDEEPAK SINGH

SUBMITTED BY:ANKUSH RUPELA

MBA 1