Now this may sound quite dated as there are many that claim that the current recession is already behind us
But one of our friends passed onto me a story about the fall of a rising business caused by negative moods of people fearing the onset of a recession. The gist of which was:
Recession - It's all in our MIND! And we actually FUEL this recession much more than we think we do!!!
I infer that the mind being referred here is that of the average or common man or women.
It is a tragic irony of life, particularly economic life that the common who is rarely applauded for his/her contribution in a boom, surely shares blame in a downturn
In a lighter vein, a prospective economic advisor of the John McCain campaign team lost his job because he said 2 years ago that USA was in a mental recession.
Though common people read/hear about recessions, they do not stop going to their jobs. But they are thrown out of jobs. So in whose mind is the recession?, the common guy or the corporation which lays him off ?
The first stone in a business decline is always thrown by the big guns. The poor guys in jobs just try to defend themselves and mostly lose.
While it is tempting to agree with the theory of that article, it still remains a theory that has been proven false like so many other theories
There was also a theory that housing prices will keep going up
And the theory that we can have perpetual growth and prosperity
Recession could very well be in the mind just as exuberance of happiness is in the mind. But that is more like a Freudian logic which is not necessarily the best way to analyze empirical phenomena
The economic and business reasoning of recession is that it is an interruption of a business cycle, especially a boom cycle and is sometimes required to correct excesses resulting from extremes of the boom cycle
The recession could be mild or severe depending upon how much contraction is required in manufacturing and commerce to correct the excesses built up in the previous boom cycle and what is the monetary and fiscal response of the financial authorities in the respective economies. International trade and commerce introduces complexity into monetary and fiscal response to recessionary events
Cyclicality in business or the boom-bust cycle is considered unavoidable as the bias of most economic policy is towards growth and not towards stability. When growth becomes unsustainable, recessions inevitably follow. Recessions can be delayed or mitigated, but not avoided totally
Recessions are a way of correcting distortions which creep into a growth model during the boom cycle. Textbook approach to monetary and fiscal response, meaning monetary and fiscal tools that preserve currency and price stability can generally cushion the severity of recession. But monetary authorities especially in US & Europe nowadays are using unconventional methods and that too in excessive doses, which will eventually either worsen the recession or delay the recovery
Economic Depression which is obviously worse than a recession is believed to happen as a response to an unviable or unsustainable economic structure or structural patterns in one or more economies. The structural distortions in question here are:
* Purely consumption-led growth
* Growth being financed by excessive debt
* Debt being multiplied by excessive leverage
* Negative savings in the developed world
* Massive growth of a shadow financial system built on opaque instruments (exotic derivatives) with hardly any regulation and poor to negligible risk management
Some of these have started unwinding and the remaining will also start to fall apart. A few economists believe these will result in a depression, the 1st in more than 70 years
That is my ode to recession and like Shakespeare said "Sweet are the uses of adversity"
As for the future 'In God we repose our trust'
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