Before, understanding “Recession”, we need to understand the market economy;
A] TWO STAGES OF MARKET ECONOMY
A1] Growing Market Economy
A2] Declining Market Economy
A1] Growing Market Economy:
A2] Declining Market Economy
B] TWO FACTORS OF MARKET; - DEMAND & SUPPLY
Producer wanted their demand always to be high
Consumer wanted their buying cost always to be low.
Actually, Demand is the price at which consumer is ready to buy and producer is ready to sell;
Usually, we think;
Demand = Quantity
But, here Demand = Price; This is because,
Price decides the Quantity of Sales;
Competitive Price = More Demand;
In competitive Price = Less Demand;
What is Recession?
Recession is the economy shrinking for two consecutive quarters (=6 months) with a
decrease in the GDP (=Gross Domestic Product).
GDP = Value of all the reported goods and services
produced by the people operating in the country.
What is GDP & How it is calculated ?
GDP = MONEY VALUE OF {C + I + G + (X – M)}
C = Consumables, I = Gross Investments, G = Government Spending,
X = Exports, M = Imports
GDP is a good indicator of economy; Other
indicators could be;
-Unemployment Rate
-Consumption Rate
-Actual Personal Income
-Etc..
If GDP is growing, then market is growing due to increased demand;
Note: If the recession continues for next quarter, (>6 months) then we go through “DEPRESSION” Economy;
There is a joke that economists quote to explain the Difference between “Recession & Depression”:
- RECESSION = WHEN YOUR NEIGHBOR LOSES HIS JOB
- DEPRESSION = WHEN YOU LOSE YOUR JOB
1. What goes up; Has to come down;
2. Growing economy has to come down if the production rate of goods & services was
more than the actual consumption;
Why Recession happens?
1. OVER PRODUCTION
2. LOW CONFIDENCE LEVEL
1. OVER PRODUCTION:
PSEUDO DEMAND:
ACTUAL NEED WAS NOT THERE; due to the WRONG PROJECTIONS & hype , COMPANIES
PRODUCED MORE.
A situation in which the supply exceeds the nation’s ability to consume what has been produced;
Supply > Demand
2. LOW CONFIDENCE LEVEL:
2.1 : Word of mouth:
Low Confidence Level of Millions of consumers and producers after they
hear many job cuts,Demand coming down, Companies’ bankruptcy, etc;
Consumers are fearing that they may lose their jobs;
So, they have less confidence to spend money and buy goods;
This will result in reduction in demand in the market; Consumers start saving money instead of spending money; This is a downward spiral in the economy;
Example: September 11 Terrorist Attack in US;
International Airport block in Thailand;
Mumbai Attacked in India; etc…
Series of such incidences leading into a kind of War;
Terrorists’ Attack on 11th September in US - Case Study
- Created fear in people
- People cancelled their travel plans
- Resulted in low occupancy rates
- Airlines & Hotel Industries badly hit
- Airline & Hotel Industries offered discounts, gift coupons, to attract people
- But, still, no improvement in occupancy rate
- Airline & Hotel Industries started “Cost Reduction” activities
i] Reduce No. of flights:
In flight meals reduced , Meals supplying company got the hit; Catering company lays off people.
ii] Lay off people:
Low or No income to spend and buy goods.Demand for other goods come down
iii] Salary reduction to “Not laid off people”
They became careful due to the fear of loss of job , Started saving money instead of spending;
Demand for other goods come down;
So, you can see how the hit on Airline and Hotel
industries can affect “Un-related” industries
in the end;
One industry can hit many other industries when the
confidence level of millions of consumers & producers drastically comes down;
How to know recession?
Indicators to say a nation is in recession;
- People buying less stuff
- Decrease in factory production
- Growing unemployment
- Slump in personal income
- An unhealthy stock market
How to come out of recession?
It is unhealthy for any nation to be in Recession;
So, Government will take certain countermeasures to eliminate or reduce the Effect of recession for turnaround;
Important Point: Today, it is a market Economy;
Producers Can produce and sell at their prices
Consumers Can decide to buy or not;
Both Producers and Consumers are free to act; Not a forced action
Government has 2 plans:-
Fiscal Policies (By Govt.):
Government influences the economy by changing how it (Government) spends and collects money.
Monetary Policies (By US Treasury):
US Treasury manipulates the available supply of money in the country
Fiscal Policies (By Govt.):
1] Tax cuts for businesses or for individuals
--> More money available for spending
2] More Spending by Govt. to create jobs
--> Individuals get salary and spend money
3] Automatic fiscal policy; Unemployment Insurance
--> Some income to unemployed people to spend
Above all could result into Demand picks up; Market can recover;
Monetary Policies (By US Treasury) :
1] Reduce reserve ratio
--> More money available for bank to give loans
What is Reserve Ratio?
Each bank has to keep a high % of their assets in
US Treasury. These assets do not earn any interest to banks. This money kept in
US Treasury is called “Reserves”; US Treasury sets certain ratio of this reserves and it is
called “Reserve Ratio”.
2] Lower the interest rates:
--> Individuals take more loan
3] Use its own reserved money to buy Govt. bonds
--> It becomes an income to Govt. to inject money into the market
Above all could result into Demand picks up; Market can recover;
US Treasury’s Power or Government’s Power is double-edged
sword; Sometimes, their policies to recover from recession
can be counter-productive and it may further worsen the
situation;
If we advise our people to save money, then, the multiplication effect is that
the demand will not pickup and recession will continue; Very peculiar!!!!! But, I
am not misguiding you; Just think from a macro level, if everybody in the
country stops spending, what will happen?
Nation’s recession is controlled by the actions of everybody living in that country;
As a small & growing company Absolut-e Data Com , Inc (http://www.absolut-e.com)
What is it doing to help improve the economy:-
1. To Promote your Service skills & make money out of your known Service skills
2. To encourage entrepreneurship than employment through companies who never care about employees even some one worked for their life time.
3. Irrespective of you work for some company right now or not , keep finding out your own skills & promote your skills to start making money.
4. Post your Service Requests / public requests to post to www.eServicePlace.com to help people / small companies to survive.
SERVICES MARKET PLACE : www.eServicePlace.com
Post your Service Requests for free & find your right Provider.
Post your Service Offerings for free & Find your next Services contract job.
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What companies could do ?
- Proper forecasting
- Proper Projections ,
- What-if Scenario analysis to avoid extreme case scenarios
- Build the proper Decision support system
- Proper Planning of Plan A , Plan B , Plan C .. using Project Management Methodologies.
- Setup Project Management Office (PMO) to guide properly to achieve Business goal & be successful.
Build Key Performance Indicatiors (KPI) such revenue , Sales , Expenses , revenue leaks , how to improve your revenue , how to improve performance , identify wastes & plan to reduce and much more..
Please contact me : srini@absolut-e.com to build your DW System to help your company grow & easiest way of setting up the PMO (Project Management Office) as Shared Service model.
My suggestions to media is to promote in a positive manner:
That itself put the people in confidence to get better & soon will be upward spiral.
Promote new kind of companies help the economy &
promote small companies like Absolut-e Data Com, Inc
Thanks,
Srini Centhala
