Economic recession is a way of capitalism
Wednesday, 10 June 2009
Ahmed Showkat Masud
The ongoing worldwide recession started from the USA. Then other developed countries became the prey of the economic recession one after another. Capital is self-expansionary. Investment of capital in any venture causes it to increase in size, amount and importance. A period of rapid economic expansion may continue for a few years or over some decades. After the period of rapid economic expansion is over, recession starts. The period of economic expansion may be termed an economic cycle. When the recession begins, the other side of the economy becomes visible. It is the beginning of another economic cycle.
When capital in the developed world was expanded excessively, the world famous banks, or we may say, the financial institutions of the developed countries started to invest their surplus money in sub-prime sector. They offered loans to their clients of that segment that were in need of mortgage loan. Home mortgage loan, especially excessive investment in mortgage loan made the situation worse in the developed world, in the USA, in particular. Similarly, the European Union (EU) and other developed countries like Japan have been already affected by the sub-prime sector's fall in the USA. Because the developed countries outside of the USA had made their investment in asset-backed mortgage securities.
When the sub-prime sector started to decline in the USA, values of the mortgage-backed securities dropped and the investors of other developed countries fell prey to it. Value of the properties mortgaged to the bank dropped. Intrinsic value of those securities backed by mortgage loan started to diminish. And that happened in the country that is the centre of capitalistic world, the USA. It was badly affected by the turmoil in the sib-prime sector. Then the other developed countries were also affected (like EU, Japan).
The countries on the periphery of capitalism have also been shocked by the recession. The economic recession started to become visible in the underdeveloped and the developing countries when the industrialised world itself got the drubbing. This was a lesson to us. State intervention, as necessary, is a must to overcome the shocks of economic recession that has already spread all over the world.
Our large industries such as one like the BSRM need government patronisation. On the other hand, small and medium enterprise (SME) sector requires special attention of the government to overcome the economic shocks of the economic recession. Because SMEs are using manual labour, that is, they are labour-intensive. In the SME sector, factories and plants are serviced by thousands and thousands of workers employed with various trades.
The writer works at AB Bank Ltd, Anderkilla Branch, Chittagong
The ongoing worldwide recession started from the USA. Then other developed countries became the prey of the economic recession one after another. Capital is self-expansionary. Investment of capital in any venture causes it to increase in size, amount and importance. A period of rapid economic expansion may continue for a few years or over some decades. After the period of rapid economic expansion is over, recession starts. The period of economic expansion may be termed an economic cycle. When the recession begins, the other side of the economy becomes visible. It is the beginning of another economic cycle.
When capital in the developed world was expanded excessively, the world famous banks, or we may say, the financial institutions of the developed countries started to invest their surplus money in sub-prime sector. They offered loans to their clients of that segment that were in need of mortgage loan. Home mortgage loan, especially excessive investment in mortgage loan made the situation worse in the developed world, in the USA, in particular. Similarly, the European Union (EU) and other developed countries like Japan have been already affected by the sub-prime sector's fall in the USA. Because the developed countries outside of the USA had made their investment in asset-backed mortgage securities.
When the sub-prime sector started to decline in the USA, values of the mortgage-backed securities dropped and the investors of other developed countries fell prey to it. Value of the properties mortgaged to the bank dropped. Intrinsic value of those securities backed by mortgage loan started to diminish. And that happened in the country that is the centre of capitalistic world, the USA. It was badly affected by the turmoil in the sib-prime sector. Then the other developed countries were also affected (like EU, Japan).
The countries on the periphery of capitalism have also been shocked by the recession. The economic recession started to become visible in the underdeveloped and the developing countries when the industrialised world itself got the drubbing. This was a lesson to us. State intervention, as necessary, is a must to overcome the shocks of economic recession that has already spread all over the world.
Our large industries such as one like the BSRM need government patronisation. On the other hand, small and medium enterprise (SME) sector requires special attention of the government to overcome the economic shocks of the economic recession. Because SMEs are using manual labour, that is, they are labour-intensive. In the SME sector, factories and plants are serviced by thousands and thousands of workers employed with various trades.
The writer works at AB Bank Ltd, Anderkilla Branch, Chittagong