On the 14th of March, around 25 people have gathered in the Old Common Room for Pet Talk 2. The discussion topic was on Recession and below was the report on what have been discussed on that night.

Definition of Recession: In macroeconomic term, recession describes the decline of Gross Domestic Product (GDP) of a country for two quarter. On the other hand, according to National Bureau of Economic Research, recession is “ a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real gross domestic product (GDP), real income, employment, industrial production and wholesale-retail sales”. [Haizum]

Causes of Recession: The major cause of recession is inflation. Inflation occurs when prices of goods and services are increased. Only small amount of goods and services can be purchased with the same amount of money. Consequently, consumers tend to save money and this leads to decline of GDP. To add on that, unemployment rates increase as well. [Amir]

Credit crunch can also cause recession. Credit crunch occurs when banks do not have enough loans to give out. World economy: Credit crunch could bring recession :

Recession in the United States :Ex-president of the US, George W. Bush spent too much funds on military. Current earning of the US cannot cover the country’s debt. [napee] Bush administration is also another reason to the country’s recession. The US has two major political parties, the Democratic Party and the Republic Party. One of Democratic Party’s policies is to increase taxes and provide welfare to citizen. On the other hand, one of the Republican Party’s policies is to cut down taxes. However, also due to tax cut, the United State earning is not able to cover the debts. [ka-mun]

Recession in Malaysia back in 1998 : Recession in Malaysia occur during in 1997/1998 during Asian Financial Crisis. The crisis started with falling currencies of Thai baht, Philippines Peso, Malaysian Ringgit and Indonesian Rupiah. Dato Sri Dr Mahathir claimed that George Soros’ speculation of currency is the reason to the Financial Crisis. More info on Asian Financial Crisis 1997-1998 : Dato Sri Dr Mahathir had also introduced Inflasi Sifar Kempen [raja].

Recession and industries:

1. General Motor Corp. (GM)

General Motors Corporation (GM) (NYSE: GM), is the world’s second-largest automaker after Toyota.  On March 5, 2009, GM’s independent public accounting firm (Deloitte & Touche LLC) issued a qualified opinion as part of GM’s 2008 annual report that stated “these conditions raise substantial doubt about its ability to continue as a going concern”. A qualified going concern audit letter like this is only issued by the auditors when the company is in extreme financial distress and it is likely that they may file for bankruptcy protection.  On March 12, 2009, GM’s CFO Ray Young said that it would not need the requested $2B in March noting that the cost-cutting measures are starting to take hold.

2.Insurance Companies

American International Group (AIG) was facing bankruptcy and was bailed out by the US government.  Major cause of AIG financial crisis was due to the credit default swap (CDS) which the company sells.  Credit default swaps is insurance on bond. A bank which buys bonds from another company [B], can purchase CDS from insurance company. If company [B] bankrupts, the bank loses its bond but it can get money from insurance company.  Once recession hit, many companies face bankruptcy and can’t pay the bondholders. Consequently, CDS issuers like AIG have to fork out huge sum of money. More information on AIG’s financial crisis and CDS: How AIG fell Apart:

Top 10 Recession-Proof jobs/industry (from Sales Representative, Account and customer service representative, Accountant, counseling and social work, software design, administrative assistant, networking and system administration, nursing, mechanical engineering and sales executive.

Response to Recession

1.Deficit Spending

Deficit spending means spending exceeds earning. By putting more money into the country, purchasing power of consumer can be increased. Following that, demand will increase, manufactures will also hike up and this can stimulate economy of a country. [amir]

2.Human Capital

Human Capital should be developed to overcome recession. Students should study smart, develop themselves and be knowledgeable. Countries with better human capital should be able to recover from recession much faster. [ka-mun]Unemployment rate during recession is high; students should continue their studies and do graduate studies.

3. Islamic Banking : Can Islamic banking resolves recession? Islamic banking is a banking system which base on principles of Islamic law. More info on Islamic Banking : What is Islamic Banking Advantages of Islamic Banking Students’

Personal experience

Radin did his internship at an integrated circuit (IC) company and the sales of the company decline by 50% due to recession.

One Response

  1. i will comea long for the next one..Bila?

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