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Banka had money with them and wanted to give it somwer. So gave subprime loans. So ppl also started taking loans. Then real estate bubble broke down and had imoact on banks
Wen govt debt rate inc, interest rates are relaxed. High liquidityto high inflation. How to manage risk.
Govt went to fiscal policies. Wer expenditure of govt is higher than Risk related to rise in debt are: European debt crisis----govt default therefore bank defaults towards ppl. So ppl stop borrowing and lending to banks. So there is liquidity crunch. Impacts growth of economy in terms of unemplymnt gdp exp imp.iip(index of industrial production) savings rate.
Wen high inflation, govt goes for tightenin of money flow and vice versa Steps taken by us govt to inc flow of money Reduction of intrst rate. Quantitative easing: federal bank(main central bnk) started purchasing assets from other banks lik loans. Started selling some assets to other countries to increase the money in economy.as it was dollars.
Contain Inflation
We are on earth with the strong invisible gravitational pull keeping us stuck on the surface of earth balancing everything. Hence everything that goes up has to come down, even the spiraling prices. In the mean time on the earth when the prices go high, it causes its own mess eroding the purchasing powers of every individual leading to recession. The more the time the prices stay above the purchasing power of an average citizen, the more the damage. Hence take any measure deemed necessary to bring the inflation rates down as inflation erodes away the value of money, year on year, of any economy.
Encourage Savings
Any family without savings is a roofless home; it is not insulated and can be subjected to rain or shine any time. Any finance budget without surplus/savings (deficit budget) is a source of concern whether it is the budget of a country or the budget of a family. Hence starting from microeconomics, encourage savings from individual level or family level. Give
tax sops for savings. Give tax sops on the savings of your citizens abroad, who are bringing back money to homeland to invest it here. Economies with their population having considerable amount of per capita savings and per capita disposable income are very much better insulated in recession times than their counterparts with population of more debt levels.
Cut Taxes
Give tax sops to encourage people with good amount of savings to loose their purse strings to go for a shopping spree on real estate assets or to invest in stocks, bonds or to even start new businesses so that new job opportunities are made and the money lying idle in savings instruments is routed to a healthy cause.
Encourage Exports
No country can be self sufficient. At the minimum any country will need to trade in for food or energy. Hence to keep your foreign currency reserves in good health, encourage exports to the extent that it doesnt cause inflation in your own country. Encouraging exports should turn your country from a consumer state to a producer state.
If your country does not have rich people with enough resources to start new businesses let some foreigners do it to flourish the economy, may be you can keep the controlling stake with your citizens itself by regulating the ownership ratio of 51:49. Send troops abroad to sell your countrys advantages in opening up shops and to lobby entrepreneurs. Conduct international trade fairs to attract investors. This way youre creating new employment opportunities and inviting fresh flow of cash to your country.
No Bailout Plans For Any Companies Except Banks And Insurance Companies
Weve already seen the flaws, inefficiency, unproductivity and failures of socialist economies. Do you want to test that again with innocent taxpayers money? Was it the public who got the share of profit of these organizations profits all these days? A government cannot spoon-feed each and every commercial organization that is falling down. What benefits do the public or an innocent tax payer have if you bail out an automotive company or some other commercial organization with tax payers money? Only a few thousand employees of that company might be saved making them further lazy. Leave it out to the natures phenomenon; survival of the fittest, let the big fishes swallow the small fishes or let the big fishes die and become prey for the small ones. Let them consolidate. Hence say no to bridging loans or any bailout plan of that sort for any commercial organization sparing banks and insurance companies (since publics money is involved with these two) so as to boost the morale of the public on economy and banking system of the country. (Five minutes past I completed writing this post on Friday and scheduled to surface on Monday, Yahoo News reported that the Bush administration approved bailout, automakers to get $17.4B. Im wondering whether United States is moving from capitalism to socialism with the government taking stake in businesses! These car majors have world wide operations and had they operated profitable at least sparing US, they would not have requested a single cent as bailout from the government. Of course, Fords CEO Alan Mulally is reluctant to accept the bailout as of now because of a comfortable cash cushion they have developed foreseeing market conditions, but they too will fall on the prey if recession
tightens its grip and deepens its roots. Note that in its 71-year history of business, only now Toyota is forecasting its first ever operating loss! So, if Korean, Japanese or German car maker giants can withstand and survive the recession without any government aid from their respective governments, why not the Americans? Just inefficiency and I dont know why (only) the Americans are paying for their car majors accrued losses having international operations and dont know how the bailout is going to stop the tumbling cards and boost the American economy! Pity the American tax payers.)
Work More
I know Japanese for working more to show their protests to their employers, thats why Japan is still different from the world. Japanese should be our idols, they bounced back from the damn after effects of Hiroshima and Nagasaki just with their hard work. Hard work has never killed anybody and the fruits of hard work are so sweet. Hence extend your working hours from 40 hours a week to 48 hours a week. If youre a US citizen, I would urge you to read Jason Calcanis article The 120% solution to bring US out of economic crisis, the current protocol that any citizen of United States of America need to follow to escape out of recession. It is rather advisable that any faithful citizen of a country read that.
It should be people at the government who should have known the importance of domestic savings before the countrys economy fell into the recession trap. It is better late than never. If at all you cared a damn saving a cent, start saving now, a penny saved is a penny earned.
Settle In Any Job If Youve Been Given A Pink Slip On The Current One
May be the recession has earned you a pink slip at the job that you loved most. Dont worry. Life has to go on. Hence, instead of banking on your savings, settle down for a next level job anywhere else even if it needs relocating to some other country, that the motto should be earning money for a living than to bank upon what you have. Focus on creating multiple income streams to your kitty by working part-time after the main job, making online sales etc.
Buy Assets
If you were wise enough, you would have sold your stocks when bourses showed weakness. Dont sell your assets now, this recession, unless you have a need for money. If you have paid out your debts and have a notable amount of savings, recession times are ideal for buying assets. Go for any immovable asset bargain hunting. Rethink your strategy instead of panicking and dumping stocks this recession, its the ideal time to buy stocks though stock markets might not have Discount Sale board at their gates. If you sit and analyze about the pros and cons of borrowing to invest versus saving to invest, you may end up with borrowing to invest, but if you want peace of mind and a secured life, stick to save to invest. Allot a part of your savings for stocks, watch out for stock market crashes during this period, hunt for blue chip companies and keep them safe in your cupboard until it glooms to sell it off and to see good returns. However, what we do is that we buy at the climax of bull runs due to enthusiasm and sell at the fag end of bear markets due to fear, the commonest mistake (or psychology) of any individual! Anticipating recession, these were the steps that Im taking/took on my personal finance. I have a good amount of savings now, paid almost my debts off and even packed my kitchen with supply for the next one year because we cant eat money if food grains become scarce because of any unknown cause!
Im not one of that world renowned economic geniuses sitting on the government ornamented chair as finance minister but one dutiful citizen expecting a pleasant life, and these are the ideas (just common sense) that sprung up in my mind and what I expect from the government to make, what I expect my fellow citizens to act upon, and what I will make myself to get out of recession. Ive given here just an abstract of the action plan on getting out of recession and this may not be a whole plan of action but still it covers the major aspects. I dont think a finance minister have to be a brainy economist to workout those anti-recessionary measures and any common man who got affected his finances with multiple recessions and who can manage his personal finance well now, can scoop out the threat of recession of his country very well.