us crisis and euro crisis

8/4/2019 Us Crisis and Euro Crisis

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US crisis:

The immediate cause or trigger of the US crisis was the bursting of the UnitedStates housing bubble which peaked in approximately 20052006. High default

rates on "subprime began to increase quickly thereafter. An increase in loanincentives such as easy initial terms and a long-term trend of rising housingprices had encouraged borrowers to assume difficult mortgages in the beliefthey would be able to quickly refinance at more favorable terms.

In the years leading up to the crisis, significant amounts of foreign moneyflowed into the U.S. from fast-growing economies in Asia and oil-producingcountries. This inflow of funds combined with low U.S. interest rates from20022004 contributed to easy credit conditions, which fueled both housing andcredit bubbles.

However, once interest rates began to rise and housing prices started to dropmoderately in 20062007 in many parts of the U.S., refinancing became moredifficult. Defaults increased dramatically as easy initial terms expired, home

prices failed to go up as anticipated.

Falling prices also resulted in 23% of U.S. homes worth less than the mortgageloan by September 2010, providing a financial incentive for borrowers to enterforeclosure. The ongoing foreclosure epidemic, of which subprime loans are

one part, that began in late 2006 in the U.S. continues to be a key factor in theglobal economic crisis, because it drains wealth from consumers and erodes thefinancial strength of banking institutions.

While the housing and credit bubbles were growing, a series of factors causedthe financial system to become increasingly fragile. Policymakers did notrecognize the increasingly important role played by financial institutions suchas investment banks known as the shadow banking system.

Effects on global stock markets due to the crisis have been dramatic. Between 1

January and 11 October 2008, owners of stocks in U.S. corporations hadsuffered about $8 trillion in losses, as their holdings declined in value from $20trillion to $12 trillion. Losses in other countries have averaged about 40%.

However India and China weathered this storm as they were growing and hadremarkable different banking system and regulations which didnot allow thesituation to get worse. It was indeed a lesson for growing economies but USdefinitely woke up to conditions of its own making.
http://en.wikipedia.org/wiki/United_States_housing_bubblehttp://en.wikipedia.org/wiki/United_States_housing_bubblehttp://en.wikipedia.org/wiki/Interest_ratehttp://en.wikipedia.org/wiki/Default_(finance)http://en.wikipedia.org/wiki/Investment_bankshttp://en.wikipedia.org/wiki/Shadow_banking_systemhttp://en.wikipedia.org/wiki/United_States_housing_bubblehttp://en.wikipedia.org/wiki/United_States_housing_bubblehttp://en.wikipedia.org/wiki/Interest_ratehttp://en.wikipedia.org/wiki/Default_(finance)http://en.wikipedia.org/wiki/Investment_bankshttp://en.wikipedia.org/wiki/Shadow_banking_system


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EURO CRISIS:

From late 2009, fears of a EURO debt crisis developed among fiscally

conservative investors concerning some European states, with the situation

becoming particularly tense in early 2010. This included euro zonemembers Greece, Ireland and Portugal and also some EU countries outsidethe area. Iceland, the country which experienced the largest crisis in 2008 whenits entire international banking system collapsed has emerged less affected bythe sovereign debt crisis as the government was unable to bail the banks out. Inthe EU, especially in countries where sovereign debts have increased sharplydue to bank bailouts, a crisis of confidence has emerged with the widening of

bondyield spreads.

In May 2011, the crisis resurfaced, concerning mostly the refinancing of Greek

public debts. The Greek people generally reject the austerity measures and haveexpressed their dissatisfaction through angry street protests. In late June 2011,the crisis situation was again brought under control with the Greek governmentmanaging to pass a package of new austerity measures and EU leaders pledgingfunds to support the country.

Concern about rising government deficits and debt levels across the globetogether with a wave of downgrading of European government debt createdalarm in financial markets. In May 2010, Europe's Finance Ministers approved

a comprehensive rescue package worth 750 Billion (then almost a trilliondollars) aimed at ensuring financial stability across Europe by creating theEuropean Financial Stability Facility.

In 2010 the debt crisis was mostly centered on events in Greece, where the costof financing government debt was rising. On 2 May 2010, the Euro zonecountries and the International Monetary Fund agreed to a 110 billion loan forGreece, conditional on the implementation of harsh austerity measures. TheGreek bail-out was followed by a 85 billion rescue package for Ireland in

November, and a 78 billion bail-out for Portugal in May 2011.

Euro zones impact on India would be far bigger than US crisis as Indiasexports to euro zone is definitely on greater scale. For traditional exportsEurope is major market and any crisis in Euro zone will have deep effects onIndian economy in the long run. India is now not a stand alone market. It isglobally connected and its pulse gets affected if other markets reacts. But stillthe growth rate in India is far better than Euro zone states and can really sustainit however the rate may be on slower side but there is little chance for India toget into recession mode.
http://en.wikipedia.org/wiki/Sovereign_debt_crisishttp://en.wikipedia.org/wiki/Sovereign_debt_crisishttp://en.wikipedia.org/wiki/2000s_European_sovereign_debt_crisis_timelinehttp://en.wikipedia.org/wiki/Euro_zonehttp://en.wikipedia.org/wiki/Economy_of_Greecehttp://en.wikipedia.org/wiki/Economy_of_Irelandhttp://en.wikipedia.org/wiki/Economy_of_Portugalhttp://en.wikipedia.org/wiki/European_Unionhttp://en.wikipedia.org/wiki/Icelandhttp://en.wikipedia.org/wiki/2008%E2%80%932011_Icelandic_financial_crisishttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Yield_spreadhttp://en.wikipedia.org/wiki/Deficit_spending#Government_deficitshttp://en.wikipedia.org/wiki/Government_debthttp://en.wikipedia.org/wiki/European_Financial_Stability_Facilityhttp://en.wikipedia.org/wiki/Eurozonehttp://en.wikipedia.org/wiki/International_Monetary_Fundhttp://en.wikipedia.org/wiki/Austerityhttp://en.wikipedia.org/wiki/Sovereign_debt_crisishttp://en.wikipedia.org/wiki/2000s_European_sovereign_debt_crisis_timelinehttp://en.wikipedia.org/wiki/Euro_zonehttp://en.wikipedia.org/wiki/Economy_of_Greecehttp://en.wikipedia.org/wiki/Economy_of_Irelandhttp://en.wikipedia.org/wiki/Economy_of_Portugalhttp://en.wikipedia.org/wiki/European_Unionhttp://en.wikipedia.org/wiki/Icelandhttp://en.wikipedia.org/wiki/2008%E2%80%932011_Icelandic_financial_crisishttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Yield_spreadhttp://en.wikipedia.org/wiki/Deficit_spending#Government_deficitshttp://en.wikipedia.org/wiki/Government_debthttp://en.wikipedia.org/wiki/European_Financial_Stability_Facilityhttp://en.wikipedia.org/wiki/Eurozonehttp://en.wikipedia.org/wiki/International_Monetary_Fundhttp://en.wikipedia.org/wiki/Austerity


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FDI in retail:

As per the latest estimates, the retail sector in India is currently worth aroundUS$ 400 billion and accounts for 22% of the GDP. It also contributes a healthy

8% to the countrys employment. Domestic power players like the FutureGroup, Reliance and Tata amongst others; continue to adopt a high scalabilitystrategy and are increasingly experimenting with new formats that are gaininggreater acceptance with an ever evolving and perceptive consumer. A slew ofhypermarkets, supermarkets, departmental, convenience and specialty stores arerapidly replacing the traditional mom-and-pop kirana stores; raising graveconcerns regarding their profitable existence in the long term. Amidst all thishyperactivity, one key issue that has remained atop the agenda of the countrys

policy formulators for a while now has been the issue of FDI in the retail sector.

Foreign Direct Investment (FDI) in the retail sector has always

been a contentious issue. Presently, India allows 51% FDI in

single-brand retail and 100% for cash-and-carry outlets

that are permitted to sell only to other retailers and businesses.

This has seen global giants such as Walmart and Carrefour

enter the Indian market. Walmart currently operates five

cash-and-carry outlets in partnership with the Bharti

Group while Carrefour set shop with its first cash-and-

carry store last December. FDI in multi-brand retail however,

has always been a hot potato of sorts. Global retailers are

clamouring at our doors. The authorities have made the right

noises from time to time but have been reluctant to open the

floodgates as far as FDI in multi-brand retailing is concerned.

However, in the face of rising inflation, need for proactive

economic and strategic reforms and employment generation

opportunities; the Government appears to be softening its

stand.

In July of last year, the Department of Industrial Policy and

Promotion (DIPP) released a detailed discussion paper exploring

the plausibility of permitting FDI in multi-brand retail. The paper

sought to allay the fears of the traditional kirana stores that

stand to lose the most in the wake of the purported market

entry of international players. Many believe that the widely

propounded theory that the entry of big fish will kill small fry


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is a myth and there is ample scope for growth for both

segments.

India's multi-brand retail sector, which according to a Boston Consulting Group(BCG) study is estimated to be worth $28 billion (Rs. 125,000 crore). "Thegovernment has already prepared a draft which says 49 per cent FDI inmultibrand retail will be allowed in a phased manner.

However this move of govt should be opposed as in the long run this move is

going to harm self-employment opportunities. FDI in retail will also adverselyaffect the manufacturing sector. It is also likely to adversely affect theemployment market in India. Since single brand is already allowed at 51% andcash and carry at 100%, there is no need for further reforms as more and moreworld markets are creating the hurdles in free flow of goods. There is no need togo 51% or 100% in retail for multi brands. Traditional Kirana stores needs to

be protected vehemently.
http://businesstoday.intoday.in/story/govt-may-permit-fdi-in-retail-with-riders/1/16203.htmlhttp://businesstoday.intoday.in/story/govt-may-permit-fdi-in-retail-with-riders/1/16203.html

us crisis and euro crisis

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