The strength of a man lies in his ability to rise when he falls with sustenance. Likewise, a country is immaturely called a nation if it cannot stand straight on her feet to mark out strategy for reviving the loss during economic recession. It is important we understand the basic concept of recession, site series of examples, identify some problems with recession and conclusively map out some suggested strategies out of the recession crisis.
Presently, economic recession is a threat to U. S. economy with G. D. P. low growth of 0. 1% in January to March 2008 (Bloomberg News). This is predicted to likely be the worst after the World War II, costing the citizen of 63,000 job loss in February 2008. The forecast reports that the present economy is difficult to predict but there is a counteracting effect of reducing the interest rates and through a fiscal stimulus program. A managed recession is an economic boost Definition
In macroeconomics, a recession is said to be a notable decline in economic activities spread across the economy, lasting over few months, bringing reduction in visible Gross Domestic Product, the total real income, employment rate, industrial buoyancy and relationship between the wholesale-retail marketing activities. A recession is noticeable just after sharp peak in economic boom. Between these there is a normal state called expansion. The beauty of recession lies in its briefness when professionally tackled in due time.
But it is sad to note that accurate prediction in time and extent of a looming recession is faint. A notable recession was that of March 2001 to November 2001, when the United State of America experienced 8 months of severe recession with worst quarter GDP Growth of 1. 4%. During the moment of economic recession, “blue ship companies such as banking industry, financial services, pharmaceuticals tend to withstand the heat better and grows faster after the relieve”. Problems with recession.
A vicious cycle of losses are experiecned, capital reduction, liquidation of assets below standard prices. Once a severe recession starts, a massive wave of corporate set back will take place. “Typically U. S. corporate default rates are about 3. 8% from 1971 to 2007; in 2006 and 2007 this figure was a rather low of 0. 6%. And in a typical U. S. recession such default rates surge above 10%” (Nouriel Roubini, n. d. ). Among other serious implications is ‘shadow banking system’.
“This is largely formed by non-bank financial institutions that like banks, borrow short and in liquid forms and lend or invest long in more illiquid assetsthey may go bankrupt because of inability to refinance their liabilities” (Financial Week, feb. 2008) Riding out the Recession Storm A managed recession is an economic boost Some suggested ways out of recession as postulated by key economists: Deficit Spending: Keynasians economy, a theory advocating for a reducing federal Government spending or interference with the economy.
The economists propose that the market and the private sectors operate best without Government intervention: – Through a reduction in banking interest rate – Through State spending on infrastructure; the injection of income into more of investment and production (full resources utilization by controlling total demand for goods and services) Supply-side economy theory: This theory emphasize the cutting of ‘income tax and capital gains tax rate’ as the surest means of providing incentives to investors thereby promoting fast economic growth (Jude Wanniski, 1975).
A reduction in tax could in the long run result in an overall increase in state tax income when more investors are enticed to participate in the economy play ground (a managed recession is an economic boost). More private sectors increase the production of goods and services, making them available for the consumers at a competitive bidding. Laissez-faire (‘let do’) Theory: This generally preaches that state should encourage private initiative, stating that productivity are best enhanced when market is free of “economic interventionism and taxation”.
The theory stresses the need to maintain individual freedom, peace, security and asset rights. In Conclusion A managed recession is an economic boost. It is strongly recommended that economist must be on the watch to foresee the pending recession for urgent control through the most appropriate theory for an inherent state. The professional watch will ensure a sustained economic expansion and avoid unexplained economy rise to sharp peak without control.The workable control brings blessing to the state and such an experience is kept for historical annuls.
1. http://www. nytimes. com/2005/08/31/business/31wanniski. html Jude Wanniski, 69, Journalist Who Coined the Term ‘Supply-Side Economics,’ Dies 2. Keynes, John Maynard. Foreword to the General Theory. Foreword to the German edition/Vorwort Zur Deutschen Ausgabe 3. http://www. washingtonpost. com/wp-dyn/article/2007/12/10/AR2007121001589. html Recession Predictions and Investment Decisions by Allan Sloan, December 11, 2007