Despite the fact that the 2008-09 financial crisis occurred over a decade ago, there are still many lessons to be gained from this particular economic downturn. To be sure, we have had an economic recovery, but it’s been unequal, especially for those on the lowest end of the income scale who have little to no investments or savings.

History repeats itself, first as a tragedy, second as a farce

History repeats itself. We all have to listen to such phrase whether it comes with great times or tough times, so would we experience the same recession and crisis this year? So, first, let’s look at the 2008-2001 market collapse, and then we’ll talk about the present market situation following the FED interest rate hikes.

2001’s financial crisis and its aftermath :-

To comprehend the issue, we must go back to the financial crisis of 2001, do you know ?? where it all began: India as a developing economy with the fastest GDP growth. To understand why India found itself in this scenario, let us go back in time. It all began in the 1990s. India went bust in 1991, recovered through globalisation, and benefited greatly of a fast-growing economy, with GDP growth averaging 7.5% from 1994 and 1997. India’s increasing connectivity with the global economy allowed it to benefit from the global economic boom during these years. All emerging nations, including India, saw an influx of foreign institutional investors, putting the stock market and economy into speed.

However, India’s rapid growth came to a halt in 1997, when the Asian financial crisis struck, and the Indian economy collapsed alongside the world economy. In the next five years, India’s GDP growth averaged only 5.5 percent. However, because India was one of the fastest growing economies in the world at the time, economists took attempts to address the problem, claiming that it was not a major concern. Nonetheless, the shift in motion, from speed to slowdown, was incredibly painful. 

Many industries borrowed money during the mid-to-late 1990s boom to expand their plants for which there was no need or demand, and also enormous projects were left unfinished and companies were defaulted due to giant loans and non-repayments, but RBI salvaged them with innovative accounting practices. Household investors were shocked when stock markets fell and firms ceased returning fixed deposits.

The Financial Crisis 2008: The Time of a Great Recession :-

The worldwide financial crisis of 2008 lasted a year, culminating with the bankruptcy of Lehman Brothers in September 2008 and the subsequent bailout of Wall Street. Lehman Brothers’ failure was the largest bankruptcy in US history. Financial markets were in decline at the moment, with the major US indices suffering their greatest losses in history, affecting the global economy as well as India.

The Federal Reserve hiked the fed funds rate in 2004 at the same time that the interest rates on these new mortgages were adjusted. As supply outpaced demand, housing prices began to decrease in 2007. Homeowners who couldn’t afford the payments but couldn’t sell their home were imprisoned. When derivatives’ values plummeted, banks stopped lending to one another. As a result, the financial crisis erupted, resulting in the Great Recession.

Economic Impact On India:-

1. Stock market downfall:- When the financial markets in the United States and Europe fell, it had a significant impact on India. FII began selling shares in Indian companies in order to cover the home companies’ liquidity requirements . As a result, share values soared to new highs, resulting in massive losses for Indian corporations and investors, whose fortunes were wiped out.

2. Decrease in the value of Rupees:- When the FIIs sold their Indian company shares, they received the profits in Indian rupees, which they had to convert to dollars before sending them outside. As a result, demand for dollars increased. The Indian importers similarly wanted payment in dollars, at a period when the worth of one dollar was 50.6

3. The process of supplying more dollars in the foreign currency market resulted in a decrease in the quantity of rupees in the banking sector, affecting credit flow to the industry.

4. India’s GDP growth slowed to 6.8% from 9% each year previously. Aside from that, the output of the automobile, aviation, and shipping industries, among other industries, has decreased. Textiles, leather, diamonds, and other export-oriented industries have all suffered significant losses as a result of the global financial crisis.

The global financial crisis of 2008 was a serious global financial crisis. Excessive risktaking by banks, along with the collapse of the US housing bubble, harmed financial institutions around the world. This crisis has an impact on economies all over the world. It resulted in bank failures, a drop in housing markets, a sharp increase in unemployment, and so on.

Will the globe experience another financial crisis?

As the world has already experienced two of the most severe recessions and economic downturns, they have learned a number of lessons, including the importance of keeping security capital and keeping a close eye on all issues that arise in the economy, never treating a problem as minor, and being prepared for any uncertainty.
It’s a gigantic question, and no one will be able to give a correct answer in a short amount of time. However, there are many simples that can be observed in the past regarding the global recession, thus the solution to this question is difficult to give. Let’s explore it. Economy has dealt with a number of difficulties, including –

1. The Trade War Between The United States And China, Which Has Impacted Not Just These Countries But Also Other Nations Because These Two Countries Are The World’s Largest In Terms Of GDP And Commerce.
2. The increase in oil prices is not helping countries like India and other oil-importing nations.
3. covid 19 pandemic were the economy stubbled at some point.
4. cryptocurrency bubble etc.

The FED Interest Rates Hike:-

In an effort to keep inflation under control, the Federal Reserve hiked its main interest rate by 75 basis points, the largest rise since 1994. According to economists, the action will have a negative influence on the Indian economy.

Impact On India-

1. “In the United States, higher interest rates and quantitative tightening limit the incentive for risk capital to flow into emerging markets like India. In the coming quarters, India will experience tougher financial conditions.
2. Foreign investors may find Indian markets less appealing. The Indian rupee has already weakened due to a growing trade deficit driven by import growth surpassing export growth and a number of other causes.
3. Inflation is eroding real disposable income for Indian consumers, just as it is for their American counterparts. Higher debt servicing costs would reduce real disposable incomes when both the Fed and the Reserve Bank of India eliminate monetary accommodation.

The Final Words:-

Every Thing Comes To You At The Right Time. Be Patience

We have encountered numerous ups and downs in the past based on our financial ability. The 2001 crisis occurred because we were not prepared, and the 2008 crisis occurred due to some of our negligence and system problems.However, above a certain point, it is unlikely to repeat itself, which is why? Growing capital costs and quickly declining liquidity pose a risk of mass defaults and worldwide contagion, similar to what happened after Lehman Brothers collapsed in 2008. This, however, is exceedingly unlikely.

Despite the fact that there appear to be few holes in the global economy due to a variety of factors, the globe today is in a better position than it was in 2008.
Banks are now required to retain more capital than they were previously, implying that they are less indebted and have a stronger monetary position. Second, we can see that banks now retain less in the way of trading assets, which means that risk is much reduced.