PLZ Explain to me What recession means! & the Mortgage crisis?
by Mortgage Rates on Thursday, September 23rd, 2010 | 2 Comments
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Basically, what lenders do is give out loans to individuals, and then package them in bundles and sell them to investors. The individuals have been defaulting on the loans in record numbers, so investors are made less profitable and are less likely to invest. This is what they are talking about when they mention “the collapse of the secondary market”.
This means less money to go around, so you have to get a bit stricter with your limitations on who can borrow, that way investors see less risk, and are tempted to participate again.
I’ll do what I can, but I’m no economist and it’s been 20 years since I’ve taken economics. I’m afraid you’re going to have to learn what GDP means though. GDP stands for “Gross Domestic Product”. What that means is the “value” of our economy. It’s how much everything we (the USA) produce and all the services we provide are worth. So, if GM makes $1 billion dollars worth of cars, they contribute $1 billion to the GDP. If all the gardeners in the country added what they charged for their services in one year together, and it equaled $3 million, then all the gardeners contributed $3 million to the GDP. Add up everything produced, and all the services people charge for together, in the whole country, and you get GDP. Now your questions:
1- A recession is when GDP shrinks for at least 2 quarters (1 quarter is 3 months).
2-During a recession, unemployment generally increases, people spend less money beause of uncertainty or loss of wages and the economy slows down. Business’ may lose revenue or not make as much as they thought they would.
3-Everybody can be effected, but the harmful effects are most felt in the middle and especially lower middle class. Some rich people might argue with me here, but a reduction of wealth and not being able to afford the same luxuries is not as bad as having trouble affording necessesities. People in the lower middle class can slip into poverty. The poor are less likely to notice as things are already bad economically for them. Bummers can be not being able to buy the plasma TV you wanted to losing your house or not being able to afford going to the doctor.
The last time we had a recession was in the late 90′s early 2000, espeically after 9/11. Before that, the next recession was in the late 80′s, early 90′s. They happen more often than people think.
People confuse recession and depression becuase when “you” lose your job, or are afraid you will, it’s a depression to you. It’s hard to have a broad perspective if you and your family are suffering.