Recession is a necessary evil....

They are calling this current economic crisis as unprecedented and worst in the modern times , infact some financial analysts are comparing this trough as bad as the Great Economic Depression of 1929.

The questions which arise are why do we land up in such a situation and why is it cyclical phenomenon.I like to view things in a very simplistic way in life and would like to do so now too.I feel that such an economic downturn is a blessing in disguise.
The world readily accepted the merits and success of Capitalism more after the Second World war and the fallout of the USSR in 1990 weakened the stance of Socialism all the more in the 90's and in this century.USA and her allies grew larger in stature and suddenly Capitalism was viewed as the best possible economic model with Utopian principles.With global economy becoming more interconnected with each other the dependancies of individual economies grew more on the developed nations and vice-versa.
The liberalization of some of the developing economies opened up the possibility of offshoring jobs and building up of the services sector in some developing countries.In some cases even manufacturing was getting offshored to other developing economies .Everything seemed to be picture perfect and it seemed that nothing could go wrong , but the fundamental problem laid in the fact that for any economy to sustain and grow the common man needs to have a net disposable income.By offshoring jobs to developing countries i.e India,China,Phillipines the income and spending power of the common man was eroded due to unemployment.Morever with the influx developed markets with cheaper commodities and goods from developing nations the indigenous industries suffered miserably leading to shutdown of many companies.This erosion of income took some time before it started to impact the paying power to clear off credit card debts and mortgages.
To add on to this spiral downturn the financial institutions eased of their risk models to give of loans to home buyers etc.This time period also saw a rise in the number of mortgage brokers who acted as conduits to give easy loans to individuals with a besmirched credit history.
All was still safe till this point had some regulatory body interjected and stopped the flow of blood , however to add on to this the Investment Bankers converted these bad debts as attractive investment with "ZERO" Net Present value as a future investment which would yield returns over a period of 10 years.Large institutions invested their surplus funds into these investment options to gain profit over a long term.Hence over a period time money was being lost without anyone realizing what was happening.
With the happening of this recession , I hope everyone across the world has realized about some of the demerits of capitalism.Capitalism is great when the distribution of income is equal across the realms of the society and when everyone aspires to grow at a steady pace.
The one thing which I fail to comprehend is the concept of market capitalization , its something which governs the lifeline of each sensex index across the world. I personally feel all the mad rush in share markets is in the endeavour to protect the market value of a company which is directly linked to the share prices (as the number of units remain constant).No one till date has been able to give me a concrete list of all factors which impact the share prices of a specific set of companies in an industry.Everything is based on speculation (I might be wrong here , but would be obliged if someone could enlighten me here) and prices jump up and down over a period so does my pulse in my jugular.
There are some key learnings from this recession for all the companies and leaders , and I have enlisted some of them below :-
> Growth of any company should be based on current profits and net earnings and not on future investments and projects.
> More strict guidelines need to be incorporated to ensure that audit companies comply with the standards before publishing the quarterly/yearly results of each company
> Leaders of developing nations should understand that the backbone of every strong economy is always the manufacturing sector.
> Their should be more science applied to the forecast or control the share prices and the sensex , and it should not be based on forecasting trends based on historical prices which were always speculated
> Companies just dont grow by increasing their wingspans sporadically , the growth can be achieved organically and inorganically.More controls should be levied in terms of controlling the expenses within and each investment project should be analyzed properly before being given a go ahead.
> Lastly , lay offs is not the solution to resolve the economic problem , its a problem to which the solution lies in creating more jobs by creating more infrastructure and manufacturing projects.
I would say that one should not loose hope in these times of distress and always look at the positive aspects from this dark period.Capitalism is fantastic when controlled within an achievable growth rate and thats what all of us should realize at the end.Each one of us individually is a capitalist in himself/herself , our needs and demands grow each minute and that can be explained with the number of cars we buy and the number of "investment properties" we invest in.Its time for all of us to take a break in life and slow down our pace.
Hence all of us individually can make a difference , by no means should we increase the demand of any commodity which gives rise to a false demand.
Its important to realize during such times to realize what we value the most as individuals is it money invested in locked in options or is it the peace of mind.
There are some things money cant buy for every other worry there is always a beer lying in the pub nearest to your house....
Cheers !!!!