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The Credit Cruncher was conceived to help you to keep up to date with credit crunch and recession developments, it provides some helpful credit crunch advice and it addresses personal debt. The Credit Cruncher also seeks to explain how the credit crunch started and shed some light on the worldwide recession. Recently, we have begun to look at how BREXIT will affect the UK economy. Please feel free to leave comments where relevant.

17 Aug 2008

Are we in a Recession?

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:

  1. Those that need to borrow to boost their business activities can borrow at an advantageous rate.
  2. Those that have money to invest may be more prepared to invest in risk ventures whilst bank rates are low.
Quite how this will work out when the banks are squeezed for cash to lend due to their previous bad investments gives some pause for thought.
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...

Popular Questions:
Will we all end up broke?
How long will the credit crunch last?
Sub-prime mortgages to blame?


Ross Taylor said...

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.

jay said...

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...)