The Economics of Recession and Recovery

Off late I happened to come across a few really good articles which discussed the current recession at Length. I have summarized my views along with the abstracts of the articles which I thought would be of some use to understand the actual working of recession and Economics that steers through the recession.


Measures of Recession!!

We usually identify and measure recessions by 1) the amount of job losses, 2) the reduction in the national production of goods and services (a decline in GDP) and 3) the result of these first two events—a sharp rise in unemployment rates. A recession is a prolonged period of economic downturn.

Employment reports show that the current recession is deepening and there is broad agreement that the economy will decline for at least another six – eight months and probably longer. The national unemployment rate at 7.6% is up from the March 2007 low of 4.4%. Job losses totaling 15 Lakhs jobs were experienced since December 2007. National GDP declined by 3.8% in the 4th quarter of 2008 with a larger drop expected in this quarter.

Why Recessions Happen?

Recessions occur when there is a prolonged drop in spending. When total spending in the economy declines, there is not enough demand to keep everyone employed and as sales and production drop, companies begin to lay off workers. There are not enough customers to keep everyone employed. There are many reasons why total spending can start to decline suddenly. There was an initial event or events that sent spending downward and the following loss of jobs and wealth brought a drop in consumer spending, which is more than 2/3 of total spending.


The Anatomy of the Current Recession

The current recession was started when there was a broad recognition that home prices were far above normal levels and that many borrowers had bought homes they could not now afford. The combination of these events started a sharp drop in home prices and foreclosures that are still continuing.

These two events also created a tightening of home lending criteria and caused a huge decline in home construction and related jobs and spending. The next event was the realization that banks and other financial institutions were severely affected by the losses in home values and were holding loans that would never be repaid. The housing downturn became a financial sector crisis as financial institutions faced large loan losses.

These events resulted in a loss of confidence and decline in the stock market. The large loss of wealth in home and portfolio values caused a slowdown in consumer spending.

At the same time that our domestic economy was turning down, economies all around the world were slowing, which will contribute to a decline in India exports another spending sector to turn down.
Currently these declines in spending are feeding on each other creating large continuing job losses and great uncertainty and fear and further layoffs as businesses are preparing for lower sales in 2009.

What is Different About This Recession?

This recession includes a substantial loss of wealth, continuing uncertainty in where the bottom of housing prices and foreclosures lies, and uncertainty about the solvency and future of our banking system. Our banks were wise enough to hold the cash reserves with them, which have helped them absorb the ripples of recession spread across the sectors.

Economists believe that a successful stimulus package is not enough by itself to restore confidence and spending in the economy—the increased interest rates and banking sector challenges must also be handled carefully.

The Economics of Stimulus Efforts to Fight Recessions

Since recessions are caused and continue as a result of a drop in spending, the antidotes are policies designed to boost spending. There are three main anti-recession weapons—1) interest rate cuts, 2) tax cuts and 3) direct government spending.

Interest rate and tax cuts are designed to provide incentives to increase private sector spending by households and businesses. Direct government spending makes government the “customer” who will increase spending to restore production and jobs.

The theory behind interest rate cuts is to lower the cost of interest to consumers and businesses. If interest rates are lower the cost of buying a home or car or investing in a new plant will be lower. In addition payments on credit card and other consumer debt will be lower.

The theory behind tax rate cuts is that
1. They increase income for consumers and Businesses
2. They increase the incentive to work and invest.

The theory behind direct government spending as stimulus is
1. We can be sure that all the money will be spent
2. We can target the money to “deserving” areas such as Support to Manufacturing and Export based Industries benefits, infrastructure investments.


Beyond the Stimulus…

There is plenty of blame to go around. Investors borrowed money to the limits they could not afford. Lenders made loans without regard to the ability of borrowers to pay back the loans. There was no effective oversight of this collective imprudence. The Banks being prudent enough to play by the rules helped them to hold the liquidity that was badly required. They also came forward to assist the businesses with lower interest rate offering as they are connected with each other. We have learned the language of connectedness and common interest. But in getting to a better future, whether that is next year or the next 20 years, these connections need have greater voice than our differences and we must find ways to deal with blame that do not inflict harm on the economy and the millions of innocent victims of this economic crisis.

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Tyrannical Reds…..

Off late virtually every newspaper is discussing about CPM Vs Maoist Battle @ Lalgarh in West Bengal. Though the roots have been same for both the Outfits (little harsh term as both proved competitive to each other) but gradual doping of extraneous thoughts in the stream of communist philosophy has created a gorge between the Two. Considering political ideology that promotes the establishment of an egalitarian, classless, stateless society based on common ownership and control of the means of production and property in general, the common Philosophy of Both Red outfits have kept them together for years.



But going by the incidents in the recent past, its both the organizations, who in the name of protecting the rights of the people have battered the common man.

CPM have a list of long drawn agenda for development of the State and the party but going by the figures the Red party as tripled its income since last decade, the same is never reflected by the development index of the state. Not even one third of the benefits have materialized, except in and around Kolkata. The poor has grown poorer in the past few years.




The Red brigade/ Maoist / PWG whatever you call they who claim to be at the niche in their infested regions, have done no good to the development of the people. Handing over the arms to the innocent and unlearned masses has aggrieved the situation instead of bettering it. The development / Aid support which would have reached these towns has no been threatened to enter them.

Ultimately who is the sufferer?

The Masses, who are driven by the Ideological forces and crushed between the farces of CPM and Maoists.

Trinamool has been quite oppurtunist in the whole episode… they are just mum and watching. Di sheds no tears, and is least concerned about the grievances of Janta (masses). To add the final axe was drawn when our honorable Home Minister (PC) stated the matter as an internal matter of the State.

Taking the stock of the situation in West Bengal it is quite explosive. People are ready to draw the lines with each other’s Blood. I hope that masses become aware about this opportunist politics and prevent anything appalling to happen in the state.

Be Warned Cola Lovers…..

This happened to me as one of the most unfortunate event, what I saw this morning? As a usual pre-office ritual to have a tea before proceeding to office, I stopped at this shop ( I have been taking tea there for almost 6 months). I would just stand on the corner of the shop and would watch people walking down the lane.

BBMP has a great fondness to keep Bangalore Green as ever (thanks to them..). I hope, considering the same they had planned to spray insecticides on the trees / plants that are planted on roads, Gardens, parks etc. one of an elderly BBMP employee was spraying the insecticide on the plantation around the shop. I was keenly watching him work till he finished his job. After completing his job of spraying insecticide, he came down to the shop to have a tea. He just parked his equipments next to a heap of Cold drink containers that were kept on one edge of the shop.

While sipping my tea I saw that the sprayer was still active, and was spraying the insecticide on the heap of cold drink containers. I alerted the elderly man to this he immediately responded and turned of the sprayer. But till it was stopped the cold drinks kept in crates were already soaked well by the insecticide.

I then asked the shopkeeper to rinse / clean the bottles, as they are all soaked in Insecticide. The shopkeeper reply was very plain and simple, “ why should I do it…. All the bottle are clean and can be very well served to customers who want it!!”. Even on my repeated insistence he would not heed to my urge.

Finally I resolved that I would never go to that shop.

Some times back I received a forwarded mail, where it was told that cans stored in go-downs are prone contamination of surface from Rat Urine, pesticides etc. therefore it was suggested that cans should be washed before there contents are consumed.

I see a similar case stands with bottles as well… therefore its in your interest not to enjoy cola with additional lethal supplements and therefore always wash neck of the bottle before it is opened.

Be Warned……

Thanks

Australian Menace.. (Re: Curry Bashing)

Recent Attacks on Indians in Australia have been condemned all over by Indian Media. They have been raging photographs of people shouting slogans with placards Written anti Aussie slogans on them. It was unfortunate for people like Shravan Kumar who had to suffer during this whole episode. for almost a fortnight i have been viewing news columns depicting worries of parents and travel agents. this whole episode was really trumatic for the people who were part of it.


"Around 15-20 Australians approached us outside the taxi stand asking for a dollar. When I showed them my empty pockets, they started beating up my friend and me"

– Kanan Kharbanda (27), 3rd semester student of accounting, Melbourne Institute of Technology, who has been crippled for life.

"He was crying, on fire. He lay down on the ground and I put the blanket on him… I told him everything was going to be OK. He was asking: 'Is my face OK?"

– Arminder Singh, flatmate of Rajesh Kumar, who was attacked with a petrol bomb

"After we reached Blackburn the passenger then asked me to take him to Ringwood when my taxi tyre went flat. I tried to tell him I won't be able to take him any further and he started abusing me… I have injuries on face, leg and hand. I have two broken tooth as well”

– Indian taxi driver (35, name withheld) who was attacked by a drunken Australian passenger

Last few days have been awfully disturbing, as the reports of attacks on Indians students in Australia continue to hit the headlines one after another. I decided to reproduce some of the horror tales from the newspapers reports.

This is one part of the Story....

what comes in Next is:
I came across the blogs of this Gentlemen who claim to be residing in Melbourne, Australia. and have condemned the the Indians to Name these incidents as racially motivated.

http://www.itimes.com/content.php?cid=99640
"According to the data, 95k students are studying in Australia and 45000 are in Melbourne itself. Few days ago when they were having a protest, mere 2k students were all together. What happened to other students???? I am also Indian and just 2000 students don’t represent total Indian community"

the second Part of the Story goes like.....

The Australian Universities are Costlier and are giving lower brokerage (Consultancy Fees) for overseas admissions than thier European Counterparts. The news worked in favour of the Agents who prefered / Guided the students to join the European Universities. Today, if you go to an Agent and ask him to process your application for any XYZ australian university, first thing he is gonna ask is , "why Australia?? there are Risks.... and European Univ are good ..... and Bla Bla Bla Blah..!!"


My Opinion:

going through the complete episode... one must understand everyone is working towards his own benefit... people who are not benefitted are no way concerned with the News. wether they are in Australia or India. its only the name of the countries which are being spoiled in the eyes of the other countrymen.