Recession

Much has been said and probably less done about the ' Recession' for a while now. But what exactly is a recession and is it a good thing or bad thing to happen? Whether some call it a slower growth or a recession, it sure is affecting the vast section of the society in many different ways. Although the technical definition of the term recession differs according to the person analyzing it, all it means to the common man is that it's getting tougher to move his daily life forward. We have to note that the section of the people who are really getting frightened about a looming recession are the ones who have never been in one. Somewhere down the line we have lost some basic fundamentals of economics. Most people have only seen the bright side of the economy all their life and lived life without actually even thinking about the darker side of the economy that once has to happen. Those who have lived through the Great Depression have changed their lifestyle to prepare for the worst and live a modest, sustainable economic life. No system in the world can continue growing for ever. To maintain the balance there has to be a recession for every growth period. No matter what the Fed or other financial institutions do, the downturn has to happen. This can probably be likened to the cleaning up of a system after prolonged use and resetting the system to start fresh.

The housing crisis is probably due to the heavy speculation in this market. The prices of the houses were inflated to outrageous value that once the viable demand started to dry down the prices came crashing down reducing the value of the homes for the homeowners. Has anyone thought about how much these houses really cost?? Lenders trying to expand their market gave loans to those who cannot afford high mortgages. Now, here comes the trick. How do lenders make the people take loans? They came up with the variable interest loans. They advertised the loan package with a very low interest rate. Now the buyer is made to understand that his mortgage is going to be based on that initial interest rate but after a few months the interest rate shoots up increasing the mortgage. This leaves the homeowner in a trap because he was never told in the first place that he may have to pay higher mortgage when the rate goes up. Higher mortgage force the homeowner living on a budget to default on payments leading to increased foreclosures that further drives down the home prices and the economy around it.


There has been reduced investment of money (profits made by selling products in this country)in the US. Most of the investments are going to other countries which will take time to give back its returns. Until then the economic downturn will continue in this country. One of the main contributor to the present downturn did not happen overnight. It's the consequence of our reluctance or negligence to take actions that reflects the current investment trends. Instead, we resorted to doing patch works that only contributes to delaying the inevitable. Such patch works may resolve the issue for the short term, the shortcomings of the economic system will reappear later probably in greater form which is what is happening now. Had we resorted to making policy and law changes that reflect the changing economic conditions from time to time on a regular , the effects of such a slowdown would not have been so severe. Giving tax breaks for taking jobs out of a country is a perfect suicide.

The current plan to give stimulus package to most people is such an eyewash. It will only procrastinate the doomsday. Though this might give people a temporary relief for a month or two , they will be back to where they were if the money is not spend wisely. When spending that stimulus money you get one has to analyze his present condition and decide on his goals. If reducing your debt is your major concern then use that money for that reason. The ultimate goal should be to reduce your financial burden and not add an extra flat screen tv or an ipod to your list of collections. There will be many influences trying to get you spend that money on unnecessary things. One has to remember, buying a tv or an ipod is not going to reverse the economic condition. The companies wont make any overnight profits out of this because all that they will recover is some part of their write downs. Ultimately this money will go back to where the product was actually made which unfortunately is not US in the case of most products. It is wise to realize that we produce less products now than we used to before. So any money that we spend on buying products has to go where the product came from. We took money from china for the stimulus package and we buy products that are made in china!!!! So its basically helping china in all forms leaving us in the same place we started. Guess what? we borrow money from them , buy their products thereby giving back the money and on top of that we pay interest on that money. So it will only benefit them and drown our economy further into troubled waters. Most retailers are all up enticing the people with great offers hoping that you will spend your money at their store.

The craziest thing I have seen recently is the ad saying that the people can exchange their stimulus check for gift cards at some stores. Why in the world do you want to do that in the first place? You don't need to go to retail store to convert your check to money, you have the banks for that purpose. Here again, the retailers play it smart. They know that only those who haven't filed their tax returns electronically will get the stimulus check as a paper. These are usually people who may not bother to go to their banks to convert the check. You should not spend it on buying unnecessary things right now. One's primary goal should be to reduce the financial burden that one is in right now be it in the form of mortgage , credit card debt or any other form. Lesser financial burdens are the only thing that will make your condition better in the long run. You can definitely wait to buy that tv or ipod. Why should you help the companies get out of the mess that they themselves created? They are not going to reduce your debts. They want you to spend your money on their products so that they can make money and pay back their debt. This money wont stay in the US, it will go back to its origin which is where all the products we may buy were made.

So, if you are afterall planning to buy something then buy things that will make the money stay in our country itself. This means that we have to buy american products which ironically is hard to find now.

Heres my theory --- >

No job ---> no money----> less ability to buy products ...... then how in the world do these companies expect the people to buy their products. If they cut jobs here and make products in some other country and bring it back here to sell , who is going to buy it. Isn't that common sense, you don't need a phd to understand this basic fact. I am not saying that trade is bad, infact it is absolutely necessary , but it must be a balanced trade and not a one way shippment only. If the trade deficit goes high then import restrictions must be applied and local industries must to promoted at all times. Because at the end of the day , it is only the domestic economy that will sustain a country. No country can create a sustained and vibrant economy when its imports far exceeds its exports and domestic economy. The companies who want to sell here must be required to manufacture ( not just assemble imported components to get the final product) most of their products in this country. They have to invest in this country rather than take all the profits made here and invest it somewhere else.

One cannot save money by spending money , you actually have to keep that money with you to save it. No retailer is going to help you save money by making a hole in their profits. They first inflate the prices and then advertise that a sale is going on with huge discounts. Its simple, you raise the price by 50% and then advertise it with a 50% discount , the common man is fooled into buying it thinking that he is saving big money. Little does he realize that the companies are making huge money. But theres another side to this story, if the companies don't make money then they don't hire more people,which means less jobs for people. So in all it should be a compromise thats a win- win for all and good health of the overall economy. There are people who make money in a recession too , which is then good for them. So Recession , however you want to define it , is good for some people and bad for the others which amount to the vast majority of the society. It is bound to happen. There will be a growth after the recession. The difference is how we adapt to the situations and live our life.

There was the dot com bubble then the housing boom followed by the housing bubble. After this difficult times some area for boom will emerge, and right now this area looks to be the green technology which will be followed by green bubble.



Note : I welcome your comments on my post.

Hello Everyone,

This is my first posting on any blog. Though i am a regular visitor to many blogs i never thought of putting up one for myself. But now i think its time for me to start one. Hopefully, i should be able to post quite often in here.