Steps to Stop Recession for Governments, Companies & Individuals

Decrease in personal consumption, over spending, exorbitant imports, inflation, cyclical economy, high interest rates, sky high energy prices, trade deficit, consequent wars, subprime mortgage crisis, massive personal debts and debt trap, Clinton administration, Bush administration (or even Obama’s election promises?!!!!); who (or what) is to blame the reason for the recession, the worst ever in the history? Is it a single cause or a chain of issues? There are lot of guesses and views spreading around about how long the recession will last and how deep the recession is! If you look at the list of recessions in the United States from 1797, the minimum length of a recession has been one year (the last one in 1990-1991) and the maximum 23 years (1873-1896) though it may not be that extreme this time due to a long list of underlying differences between then and now!

Hence instead of further digging the dirt to find the roots, causes and blaming targets of recession, if we act upon measures to cease recession, it would be the need of the situation because as long as recession prolongs, unemployment rate goes up. As unemployment rate goes up, crime rate goes up; hence life becomes a hell on earth. Hence it is the need of the hour to put a brake to recession! Now how to contain recession or how to get out of recession of a country? How to exit recession of a corporation or an individual? Here are some steps to stop recession for governments, companies & individuals of a country and to bring back the economy to the path of growth and prosperity.

Steps Needed to be Taken by Governments to Stop Recession

Government of a country is the key player to stop recession and to divert the economy to the path of growth. The prime actions of a government on fighting against recession should be focused on increasing money circulation, containing inflation, boosting per capita disposable income, reducing per capita debt level, balancing interest rates, ensuring an atmosphere conducive to business activities and any other supporting measures for these causes.

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 Imports of High-Priced Commodities

To contain the prices of the articles that are sky high, encourage imports so that let the deregulated market determine the price of a commodity. If steel and cement is ruling high in your country, discourage exports and encourage imports of these goods by imposing and repealing taxes respectively. This should bring the price to a stable level, so is the case with every other commodity.

Discourage Borrowings if Inflation is Ruling High

If easy access has been given to credit at the times of high inflation, it will further add fuel to flame elevating the inflation numbers as people tend to borrow and spend on least important needs than priority needs since they have easy access to funds. Hence tighten credit as one of the measures to contain inflation.

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.

Reduce Government Expenditure and Focus on Infrastructure Development

The people at top government level should be the role models in cutting down unnecessary expenditure by switching to simple lifestyles and shelving down not-so-important projects. A government can’t spoon feed all of its population. Reduce subsidies and less priority expenditures of the government. An ideal government should be a facilitator of business providing infrastructure to a community than a conductor of business, itself owning and conducting businesses. Hence route government funds so saved to infrastructure development and activities that will generate employment than investing in businesses.

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 doesn’t cause inflation in your own country. Encouraging exports should turn your country from a consumer state to a producer state.

Reduce Interest Rates

Access to credit should not be a barrier for any deserving enthusiastic entrepreneur to start a business and this can only be achieved by reducing the interest rates. But it is a double edged sword, hence the administrators should always have their hand on the steering of this aspect balancing the interest rates and inflation, whenever the inflation rate goes up, the interest rate has also to go up to discourage borrowing for not so important purposes.

Encourage Foreign Direct Investments

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 country’s advantages in opening up shops and to lobby entrepreneurs. Conduct international trade fairs to attract investors. This way you’re creating new employment opportunities and inviting fresh flow of cash to your country.

Ensure Peaceful Atmosphere Conducive to Businesses

Businesses flourish under peaceful atmosphere and favorable government policies. Who will need to invest in a country torn apart by terrorists or with a fear of terrorist attack every other day or is a nurturing ground for terrorist activities? Hence be hard on terrorists and separatists, no compromise on this aspect by the countries who want their economy to flourish. Ensure a peaceful atmosphere conducive to business activities. Else, it is obvious that businessmen pull their investments to migrate to a country where they could make profits and see their capital investment grow.

No Bailout Plans for Any Companies Except Banks and Insurance Companies

We’ve 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 nature’s 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 public’s 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. I’m 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, Ford’s 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 don’t know why (only) the Americans are paying for their car majors’ accrued losses having international operations and don’t know how the bailout is going to stop the tumbling cards and boost the American economy! Pity the American tax payers.)

Steps Needed to be Taken by Companies to Stop Recession

Innovation is the secret of success for business. Unless you keep on innovating your products to suit the tastes of consumers, obviously you become extinct one day, it hasn’t to be a recession morning. If you haven’t been focusing on this aspect, it is for sure that you’ll be out of business this recession.

This recession, it’s a matter of extinction or surviving the recession for companies. It’s time to rage war against recession and any act to win this war including downscaling salaries, margins, undercutting competitors’ prices can be welcomed. As I said earlier in recession proofing your current stint at job, this is the time to build your brand. Keep innovating your products. If you’re into service industry, keep working on to get the best satisfaction for your customers out of your service. If your company and business ideas are still running successful in this recession and if you are sitting on huge cash reserves, recession times are the best times for bargain hunting, buyouts, mergers, consolidations and starting new ventures. This way you’re providing new employment opportunities as well as increasing your asset base. If you’re a cash strapped company, sell out the none-core businesses and assets to bring in revenue. Cut down all non-essential expenditures. Until you operate on wafer-thin margins, offer attractive selling incentives for your folks and buying incentives for the prospective buyers. It’s a global recession and still don’t stick on to that 200% profit margins that you made during the boom, decrease your margin and increase your turnover.

Steps Needed to be Taken by Individuals and General Public to Stop Recession

Recession means not the end of days or the end of life on earth. It’s only a recession, an economic slow down, may be the recession of the major economy of US catalyzed global economic slowdown. People are not spending either because they don’t have money as their personal debt levels have gone high or they’re afraid to loosen their grip on savings. Food grain production and supply have not gone down. It’s not a world wide famine. So you need to only worry about making money to buy your bread or to have enough savings to buy bread if you’re given a pink slip.

Work More

I know Japanese for working more to show their protests to their employers, that’s 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 you’re 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.

Pay Your Debts First

Before getting into action of paying off debts, examine your portfolio of debts for good debt versus bad debt. Paying off a debt that charges you high interest or a bad debt should be given first priority on your agenda. Eliminate your debt faster with aggressive debt reduction to reduce the heavy interest burden at times of low income. The faster you get out of debt, the better off you’ll be. If you’ve got credit card debt, pay it down first, as the interest rates are high for credit cards and a debit card is always better than a credit card. If you have a mortgage loan, vehicle loan, personal loan or any other sorts pay them off to the extent you can, so that you could plug the interest drain from your personal finance.

Concentrate on Saving a Penny to Stuff Your Piggy Bank

The foundation and roof of a secured life and home: Personal savings. If you look at look at creditor nations such as Germany and Japan, an average citizen saves around 10% of his/her paycheck! Per capita savings makes one’s life secure as well as the money saved by a family or an individual can be tapped by businessmen by the way of stocks and bonds to create new industries, businesses and jobs; that is the magical power of savings on one’s personal finance as well as the economy of a country. Though late, Americans have only now (finally??!!) realized the importance of savings that CNN reports US savings rate is on rise to almost 3% in the second quarter of 2008, after almost four years remaining below 1%, and Americans’ household debt falls by 0.8% though the latter can be attributed to credit crunch and more tighter lending norms.

Reduce your luxuries. Stick to the 50 tips for frugal living. Postpone your Caribbean and Mediterranean luxurious cruise vacations to next year. Share resources to stretch the maximum possible extent. May be you can share your car with your sweetheart to the office. A bicycle ride to the grocery store can be friendly on your gas bill and friendly on your health too. Instead of two-three movies a month, cut it down to a movie a month at the theater. Instead of dining out at the weekends, make it all member prepared homemade dinner.

It should be people at the government who should have known the importance of domestic savings before the country’s 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 You’ve Been Given a Pink Slip on the Current Job

May be the recession has earned you a pink slip at the job that you loved most. Don’t 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.

Pay Taxes Promptly

Any government runs on the taxes that their dutiful citizens have taken pain to pay. The more active a country’s citizens are in paying taxes, the more active the country and its economy would become. It’s a chain of activities and if you break your part of the link, the whole system goes down. Hence you as a dutiful, sincere citizen to stop recession of your country, pay your direct taxes promptly.

Buy Assets

If you were wise enough, you would have sold your stocks when bourses showed weakness. Don’t 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, it’s 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 I’m 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 can’t eat money if food grains become scarce because of any unknown cause!

I’m 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. I’ve 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 don’t 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.