Top Tip to Get Out of Recession

One advice on getting your country out of recession: Spend!

Why Spend? Why not save? Income is scarce, jobs are being cut, we need to batten down the hatch and survive the storm! Really?

Let us examine first why the economy is in doom and gloom…

1. Companies/Businesses in debt, credit is hard to get and thus they couldn’t expand and/or maintain their offerings.
2. Offerings become unattractive
3. People are less reluctant to buy
4. Less income to the businesses
5. Less money available for them to retain workers and pay back the debts
6. Businesses cut cost due to low revenue —> less jobs available
7. More unemployments —> less money available to buy —> less purchases
8. Less purchases —> less revenue to businesses
9. back to #5

See where it loops? If this Business Wheel of Death is not broken, soon a business would spiral into its’ death just like a drainhole sucks the water above it.

There are two ways of breaking the vicious circle:

1. Banks to bear the burden, freeze their profit taking until recession goes, and spread low-interest or no-interest credits to the businesses who can use them to restart the economic flow. But this is a tough call on an industry founded on greed and the primal concept of Making Money. The sacrifice required would be akin to telling a dying starved person to plant trees to make fruit to eat. So, little chance this would happen unless government interferes. But in a democratic world, this would surely be a step back to dictatorship?
2. As a more practical way, leverage the scale of population to restart the economy by having everyone contribute a few dollars to keep it running. Although this would be dependent on population size (e.g. $10 per person from 1 billion Chinese would contribute $10 billion into the economy, something which 4 million New Zealanders may need to contribute $2500 per person) but in dire situation any little help do count.

So, as you can see, in a simplistic analysis if we hold our purse closed during recession we might just be causing a worse one. Spending your dollars on your domestic economy may just give the businesses enough money to keep your jobs.

More spending —> more revenues for businesses —> more money to keep jobs open —> more income for the people —> more money to spend —> [loop]

Spending it on foreign economy (eBay anyone?) on the other hand may just help that other country survive but may or may not help yours (depending on the export/import ratio).

Besides, in recession times the interest rates for savings would be crap anyway.