The market by letters – C

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C is for Credit Crunch.

Well it couldn’t really be anything else could it (although my inner geek was quite keen on compound interest!).

Millions of lines of text have been written on the credit crunch, what it is, how long it will last and whether it’s going to be U, V, W or L Shaped.

These different types of recession are so named because of the shape of the graph they make

V-Shaped 
v shaped recession

A V-shaped recession is one where the economy quickly falls – reaches the bottom and then quickly recovers. The dot com recession in 2001, which lasted only 8 months, is a good example of a v shaped recession

It’s widely accepted that the credit crunch is not going to be V shaped, which is a shame, because as recessions go these are generally the most painless


U-shaped  
U Shaped recession

U shaped recessions show a slower rate of decline, and then stay at a low point for a longer period of time, before gradually improving. The recession from 1971 – 78 is the most obvious U-shaped recession in recent history. It’s still possible that we’re facing a u-shaped recession – but recent improvements have led to hope that the extended bottom period will not be too long.

W-Shaped W Shaper recession

Seen as the most likely scenario for the credit crunch, w-shaped recessions start in a similar way to v-shaped ones – with a sharp decline in the economy, but then recover slowly after showing a “false” recovery. The recession from 1980, with dips in 81 and 82, is an example of a w-shaped recession.


L-Shaped L Shaped recession

This is the bad one – recessions that drop quickly and never recover. Thankfully, very few economists are thinking we could be at the start of one of these  Square Root Recession

There is one, slightly more abstract, symbol based recession that people are muting – the “slightly wonky square route” – a sharp decline, followed by a recovery that levels off at about half the previous level – kind of the resultant offspring of a V shaped and L shaped recession.One thing is for certain though – the economy as a whole will always be an O – a constant cycle of boom and bust continuing in a viscous circle.

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