Tuesday, April 28, 2009
Hey guys... how many of us know exactly what does the recession mean? so thought of giving a note on same...
Recession seems to be a reoccurring topic of conversation at least over the last 1 year if not more. There have been recession fears for 2007 and 2008. Now there is the 2009 recession I’m sure there will be fears of recession in 2010 also. So, many of you wonder: Is there going to be a recession or are we living one already? Will it affect me? What can I do to recession-proof my life? I hope this is the place where you get many of your recession questions answered.
Recession – Definitions
So, what is recession? Well…there seem to be a few widely accepted definitions that try to answer this question.
Recession is a period of general economic decline; specifically, a decline in GDP (Gross Domestic Product) or negative real economic growth, typically for two or more consecutive quarters.
The time when business activity has reached its peak and starts to fall until the time when business activity bottoms out again.
Significant decline in economic activity lasting more than a few months.
“It’s a recession when your neighbor loses his job; it’s a depression when you lose yours. Harry S. Truman”
An economic recession may involve simultaneous declines in a few areas that measure overall economic activity like employment, investment, and corporate profits. Sometimes recessions are associated with falling prices (deflation) or with sharply rising prices (inflation). A severe recession is referred to as an economic depression.
Since the US economy represents about 20 percent of the global economy, trouble in the US can spread more or less quickly to throughout the world causing what is called “Global Recession”
A depression is any economic downturn where real GDP declines by more than 10 percent.
Now, a few comments on the above definitions:
The first definition is rather sterile and not necessarily accepted by many analysts, the main topics of dispute being the number of consecutive quarters of decline in GDP and the severity of GDP decline. In other words there’s no question of whether or it’s bad, but rather how bad does it have to get to call it Recession.
The second definition is very broad and is more or less relevant, and I guess it very much depends on which line of business you are in. To give an extreme example, a weapons manufacturer’s business is thriving, now that the war in Iraq still on; his recession, although mild and unlikely, may come when (if) we retreat from Iraq but he will definitely not go into a depression since his is a very sought after product.
The third definition is again very vague and we are left to wander how big of a decline is a “significant” decline and how many months are “a few months”…probably less than 6. Mind you, this is the official definition of recession given by the National Bureau of Economic Research (NBER). In case did not know, NEBR is the very agency in charge of declaring that the economy is in a state of recession!!! Never mind the vagueness; we will be already 6 months into the recession before they will declare it.
The fourth definition is just a catchy phrase (just heard it on CNN the other day), but it pretty much depends on the point of view: from your point of view, when your neighbour loses his job, it’s recession for you; from your neighbour’s point of view, the poor guy is facing depression since he’s the one getting fired. On a funny note, political correctness was probably the least of Truman’s concerns.
I’m not an economist and don’t pretend to be one, but it seems to me that all the recession talk on TV doesn’t really apply to the ordinary individual that much, unless you’re really into playing the stock market and can speculate ups or downs created by such news.
Most of this pro and con recession talk that we see on TV uses heavy economical terms and arguments and I realized that I’m not really paying much attention to it. And I’m sure that most people tune their ear to these talks just to hear there are analysts (people that know what they are talking about) that say there isn’t going to be a recession. Yes. That is what you’ve been waiting to hear. And then you go “Whew! What a relief! I knew everything is going to be OK (I’ll keep spending)” Well is it really?
Well, I think that whether or not we are in recession is different for each of us. Some of us are in recession, some not. We each have our own micro-economy, with our income and spending and, at the end of the day, we each have our own surplus or most likely debt. And if you search the web for things to do to make it through the recession it should come as no surprise that advice to “Reduce your debt”, “Increase your income” and “Reduce your spending” top most lists. Recession or not, these are common sense advices. Last night they said on the news that, according to a pole, “3 out of 4 Americans think we are in a recession (April 2009)”; I guess this pretty much proves my point that nobody other than you decides whether or not you are in a recession.
To be blunt, if your personal finances are in a state of agony and you don’t do something to fix this, recession will only cut that agony short. In a recession nobody is nice to you. And if there isn’t a recession now, there will definitely be one in the future. It’s a cycle. Such is life.
… Just an update to this post: as of now (2009), everybody on TV, including Barack Obama seems to be in compleate agreement - we’re in an economic recession. That must be it then…
I’ll end this with a nice quote about GNP (a term slightly different than GDP) by Robert Kennedy found on Wikipedia:
“The gross national product includes air pollution and advertising for cigarettes and ambulances to clear our highways of carnage. It counts special locks for our doors and jails for the people who break them. GNP includes the destruction of the redwoods and the death of Lake Superior. It grows with the production of napalm, and missiles and nuclear warheads… it does not allow for the health of our families, the quality of their education, or the joy of their play. It is indifferent to the decency of our factories and the safety of our streets alike. It does not include the beauty of our poetry or the strength of our marriages, or the intelligence of our public debate or the integrity of our public officials. It measures everything, in short, except that which makes life worthwhile.”
Makes you think…
Posted by niza's at 8:56 PM