The elements that "trigger" a recession are many. They come in no particular order. One of the major problems in dealing with the onset of a recessionary phase----is that it is just that! IT IS A PHASE---and not "a situation." Yet the media and their vociferous hype create the economic climate for an over-reaction both by Government and "it's people." The general population. This tendency for "over-reaction" has an extremely adverse effect on the resultant consequences that stem from all the hype.

People think that because population growth around the world may be averaging 2% or 2 1/2 %----that economic activity will keep pace with this. It is theoretically called "resultant economic demand." How wrong can we be. The theory is ---that with population growth, it results in job growth, which in turn generates demand for goods and services. It does not work that way. The primary reason why this is not so, is that the primary population growth stems from the poorest countries in the world. And it is these countries whose populations comprise 80 % or more of the world's people.

So here we have a situation where there is no extra demand for goods and services in 80 % of theoretical potential. However production of goods and services. in many cases seems to never be cognizant of this situation. Or if it is realized --- is still ignored.

Take as an example the continued mining of minerals. Copper, silver, Zinc, lead, aluminum, chromium, manganese etc.etc. No matter how low prices fall because of over-supply, demand never grows. This is one of the prime lessons in Economics ignored by both producers and economists alike. Price---in relation to demand! Or perhaps better said---sales in relation to price. Let us pursue this thought for a moment. If one already has an excellent toaster---there is no need to buy another, irrespective of it "being -on - sale" at a lower price, generally speaking. To those who do not have the "luxury" of electricity in their home, the price of a toaster is irrelevant.

In other words, in certain circumstances; price is irrelevant. There is a chain reaction---or domino effect which relates to over-supply or over - abundance and that of price reduction. The corollary is that the lower prices fall, so too does the profit margins between profit and cost. It makes little difference as to which of these comes first. Over-supply or lower prices---as the end results are the same. The reason for saying this, is that prices often fall because of competition, and has nothing to do with over-supply. Yet because both result in the shrinking margin between profit and cost, the recessionary cycle phases in.

IT IS OF VITAL IMPORTANCE TO REMEMBER THOSE TWO WORDS----CYCLE AND PHASE !!

We will return to some of those previous points made, at a later stage.

Before we move on to other reasons for the change between the "Boom---and---Bust." we should perhaps examine the phenomena of these two entities.

We cannot emphasize enough, those words : NOTHING LASTS FOREVER.

Yet neither Heads of Government, nor Politicians nor heads of Treasury in most countries of the World---thought otherwise. And if they did----they never said so. In consequence---or it could well have been the other way around, did most Economists think or say otherwise. And so the seeds of "in-action" are sown.

The Boom is On !! So do not disturb it. Keep it going with all the Hype we are capable of. Tragically they all came to believe in their own HYPE.

Sustained growth and sustainable growth may sound the same thing, but they are two different species of the same animal. In order to have sustainable growth----one has to have in place laws and rules in the first, in order for the second to succeed.

In order to understand this, let us examine "Sustained Growth."

SUSTAINED GROWTH : It sounds a simple operation---yet it is a complex factor. In order for THE WORLD to have sustained growth, we have to see to it that there are certain rules and laws enacted among all trading nations in order for this to take place. It is useless for any one---or two nations to accomplish this growth, if it is not taking place World-wide. No one or two nations economic growth can support the economic well-being of all other nations. And without all trading nations participating in this growth---the growth of those one or two other nations are not sustainable. This is a valuable lesson to learn.

We have to be emphatic about the following points we are about to make.

We are NOT TALKING about " GLOBALIZATION."

WE are NOT TALKING about "THE WORLD TRADE ORGANIZATION."

AND we are definitely NOT TALKING about " FREE TRADE."

To all the above we must add the following words: AT LEAST NOT IN THE CONTEXT IN WHICH ALL OF THESE OPERATE.

To make cosmetic changes to any or all of these, will not work. A band-aid merely hides a festering sore. It does not cure it. For all trading nations to participate in economic growth----they have to have a SHARE in it. Here again---the emphasis is on the word "share." While the share may not be equal, it has to be meaningful. And for it to be economically meaningful---it has to have an economically monetary value. In other words, profitable. To avoid a constant play with words, it may be time to get down to specifics.

Let us start with just one mineral. Say Copper. One cannot quantify the World's consumption of Copper by merely taking a two year, or three year average consumption, as this could have been during a very strong original period of growth. So it should be determined over a considerably longer period, and then determined as to what an annual average requirement was in terms of use. Not price. Then one has to list all the World's producers of Copper. Then to define the percentage reliance this commodity exerts on the export earnings of each country. In other words, the greater the reliance---the more meaningful an equitable share of this export value should be allocated. Difficult to do, but not impossible.

In order to be "sustainable," the price of the commodity has to be sustained. In other words A FIXED PRICE. This is vital !!

Sustained growth world-wide requires that the output of exported commodities be equitably allocated at a fixed price.

In order for trade between nations to exist, the where-with-all to pay for imports has to exist. Thus the more all countries earn by their exports, the more is available for imports---and all prosper. Otherwise all this business of "free trade" and "globalization" becomes a meaningless concept.

Why the fixed price. Because without a fixed price---economic growth is unsustainable.

When demand, for whatever reason, slackens ( or weakens ), the output of goods and services can be curtailed. PROPORTIONALLY. That's important. In other words if one's allocation of Copper exports were say 100 tons, and there is a decrease in consumption World-wide of 10 %, that allocation is cut to 90 tons, but at the full price of Copper. THE PRICE never alters, until such time as agreed upon by all exporting nations. Price adjustments should by-and -large reflect mining costs. In other words, it should be such that there is a meaningful profit margin for even the costliest extraction. Thus the easier extractable would make a "handsome profit", yet the other would make a meaningful profit. And above all, everyone would have a share.. This is especially so, and very important, were the weaker nations who rely on that commodity for export earnings, be given a greater proportional share than those whose reliance on that commodity is far less.

Let us examine the case of oil and OPEC. Over the years the price of oil has fluctuated from a low of $ 8 a barrel to as much as $ 40 a barrel. So too has the volumes being pumped. While OPEC allocated supply between it's members, price fluctuations were a disaster to their economies. In a like manner , both price and availability of supply played havoc with the rest of the world's economies. However, had a fixed "reasonable" price of say $ 25 per barrel been agreed upon by a World Body and OPEC----none of the economic problems that was suffered by the rest of the world, would have taken place. A fair price was certainly "on the table" had the appropriate body been functioning.

Perhaps this should apply to a basket of exports. Say maybe a list of the top 300 commodities, which should cover minerals as well as perhaps staple foods. However, what may become a thorny subject, is " quality." But one feels that some sort of formula to cover this aspect is possible.

What one should be reminded of, is that "export values" are fixed----and not "domestic values." Thus "subsidies" applied become irrelevant. And "dumping " becomes impossible---as prices World-wide are identical.

We think it is time to "move on."

So "sustained growth" requires World participation. But for this to succeed, sustainable growth has to be practiced by all the participants.

As long as we understand that "nothing lasts forever," we can examine the means by which the period of time that growth can be maintained, is prolonged. Vital to this concept is the understanding that a slow even growth is easier to control, or police---than a "boom period." Conversely, when growth slows down, less has to be done to mitigate it's effects when the growth was even---rather than "spectacular", as occurs when moving from "boom-to-bust."

The dictionary defines "recession" as follows : the act of receding. A withdrawal. An economic set-back in commercial and industrial activity; especially one occurring as a downward turn during a period of generally rising prosperity; a slight depression. In the United States it is defined as when two consecutive quarters are lower than the previous quarter.

WE DISAGREE !!

For a number of reasons. We feel it could have better been defined as a slowing down in economic growth. If an economy has been growing at say 4% then starts to slow down ( with the emphasis on "slow" ) to 3% or even 2 1/ 2 % over a prolonged period of time---again emphasizing "prolonged," then this would constitute "growth slowing down." Not a "recession." In reality the recessionary phase should only kick-in when growth has slowed down to equal the inflationary rate. From that point on we would be into a "recessionary phase" as growth goes below the inflation factor. Negative growth.

Were this to be identified as such, there may not have been the need for drastic action to "turn the economy around." Many things went unattended to, while the "Boom Euphoria" lasted. Playing with interest rates was and is---a fruitless exercise.

It is perhaps time to tell the story of a very wise Finance Minister. In a country which shall be nameless. Yet, should citizens of that country come across this article they perhaps would recognize both the man---and the country.

The time could possibly be set in the early 1970's. When the economy was becoming over-heated, he never touched interest rates. Too much money was chasing too few goods. So in order to contain possible inflation----he sucked the excess money supply out of the system. Everyone paid a surcharge on their income tax. If memory serves, it was 20%. So if your taxes were $1000, YOU PAID $1200 AND IF $5000, YOU PAID AN ADDITIONAL $1000. These funds were repayable in six years at an interest rate of 6%. The interest earned was tax-free. So if we presumed that this started in 1971, then in 1977 the first repayment was made and the 1972 levy was paid out in 1978 etc. this went on for four or five years. Then abandoned.

At times when growth slowed----he did nothing! He let the economy slow to a lower level. Find it's own sustainable level of growth. Interest rates rose and fell on their own. Depending on supply and demand. In other words they found their own level, and were not artificially contrived.

Surely it must be realized that nothing is ever constant. Yet in the United States, the President. the Congress, the Senate, the economists, the "Gurus," the press and the TV. all talked of the Billions forthcoming "over the next 12 years" which would "pay down and liquidate all Govt. debt. Billions per year to health care. Billions to education. Billions to social services." etc. etc. They must have firmly believed that the BOOM WOULD LAST FOREVER."

They got to believing their own hype !!

Moisture comes in many forms. It can be seen as clouds, mist and fog. It can form and fall as rain, hail or snow. It can be found in rivers and streams, lakes and underground as aquifers. And in a salty version---as the sea.

An economy is as complex and as varied. So too is economics. There are no simple structures: and above all there are no simple solutions. Let us examine a few.

Interest Rates:

The problem with interest rates, is it's utilization as a solution to a slowing economy. As well---it is used as a supposed solution to a rapidly expanding economy. They are in reality band-aids. Simply stated. They hide a festering sore or wound. At best they generate a yo-yo effect, and in many cases the side-effects are most often worse than the symptoms They show a lack of foresight and courage. Interest and interest payments are a charge for the use of money or services. It can also be a charge for the loan or the use of anything tangible. The charge rate being called "interest rates."

While it is axiomatic that a low rate costs one less---and a high rate, more: it's result is a tangible saving, and the expectancy that this saving will be productively used. Hopefully in the purchase of goods and services. However it is not as simplistic as that. One wished it were. There is a vast difference between "theory" and "practice." It always was---and always will be.

On the theoretical side it's called "consumerism." With more money in one's pocket, it is going to be spent on goods and services and this increased demand should generate jobs. Conversely when too much money is supposedly chasing too few goods and services, interest rates are increased to slow down an economy thought to be expanding at too rapid a rate.

Hold on a moment. Why do consumers slow down in their purchasing. Logic dictates several simple answers. They have enough of the goods and services. They have no more money for the goods or services. They have reached their credit limit. They have difficulty in repaying debt. They are saving their money. They are investing their money. They are gambling on the stock markets. Perhaps these are sufficient choices or reasons. Now try to marry any or all of those with "lowering interest rates." We forgot another possibility. They lost their job and have very little income. Perhaps we are getting the message.

Not only are lowering interest rates a futile exercise----they generate severe side-effects. First of all you are punishing the prudent for the unwise. Secondly you are inviting the creation of further debt. Massive debt. The cheaper money becomes, the more that further debt is created. In reality if there is to be a small impact on consumerism, it is logical to assume that so too will there be too few jobs created. At best---it may slow down job loss. One doubts that it will fire up a slowing economy.

Look at some of the penalties to be paid. When interest rates drop, so too do the incomes of those who were prudent enough to invest their money in fixed investments. Why should the good suffer for the bad. Those who unwisely assumed too much debt, should have to bear the consequences of their actions.

No cognizance seems to have been taken of what happened to Japan. No lessons learned regarding lowering interest rates. The PRIMARY REASON for the decline in the domestic consumer market, WAS CHEAP MONEY. For many years the Japanese were among the highest savers in the world. As the Yen grew stronger and production grew, the banks were flush with money. Companies and citizens were investing overseas. In Hawaii, the U.S.A., Europe and Korea, Thailand. You name it !! In Japan investments were made in land and High-risers. Office blocks. Apartments, Shopping Malls and factories. Sound like a familiar story to you ??

As interest rates dropped steadily to a point not that long ago where money was available from the banks at 1.75 % , savings rates were dropping until the best rate available was 1.125% As this was taking place savers were forced to save ever higher proportions of their income, towards their "old age." Thus the consumer market dried up. The faster it slowed, the lower rates went and savings percentages had to rise. It was feeding on itself. Sound like a familiar story to you. While this cheap money was being invested in over-valued land and properties, a massive amount of money was being invested into stock markets world-wide as well as domestically. That scenario should also have a familiar ring to you

Cheap money has it's perils. The side -effects are felt LONG AFTER THE PAIN HAS GONE.

So we get back to the "where are we going" question. There are no guarantees that the cheaper money will be wisely spent. It could well be gambled away on the stock markets in an effort to re-coup losses or spent in casinos or on overseas holidays. What is definitely NOT GUARANTEED---is that it will be spent on consumer goods and services.

An even more important effect is on the Banks and Financial Institutions. One has to only cast our gaze back to Japan again. Which brings us to DEBT.

DEBT :

Of all the sins which have to be answered to---is the creation of debt. MASSIVE DEBT. The boom was debt driven. Of all the elements that will have caused the economic slowdown, debt will be found to be the major cause. And it is this debt, that despite falling interest rates, will continue to destroy jobs. And that domino effect feeds upon itself as the unemployed have no means at all to generate "consumerism."

One has to place the blame squarely on Government. All Governments---no matter where they be. Debt is so pervasive---yet so badly controlled. The very structure of modern society seems to hinge on how easily debt is available and to how great an extent it can be utilized. Herein lies the key---the fulcrum, the lynch-pin, the key-stone that inevitably will be the deciding element to a prolonged recession world-wide.

Nothing seems to escape debt. Capital Markets are built on debt. Stock Markets and shares are built on debt. Takeovers and mergers are built on debt. Bank profits ---and profitability is built on debt. Trade---both domestic as well as International, is built on debt.

The term---"A house of Cards" perhaps amply describes what is about to happen----unless something is done about debt.

Ninety five percent of what is written here, can be found elsewhere. Said within perhaps six or more of the articles reflected on this website. Read together, there would therefore have been no need for this article. Yet that is the compelling reason for combining all these thoughts within one article. It possibly may have a greater impact, if the essentials are seen "together."

The demise of a number of banks will ultimately be placed at the door of too many unwise debt ventures. So too will it apply to the demise of many Companies, both big and small, in their taking on of too high a debt load. Thus massive losses in share values and savings. There was a time when Stock Markets were regarded as a place to invest one's savings. Alas no more. It has become little different to the Bingo Hall and the Casino. As the Americans would so aptly express it----A CRAP SHOOT !! A roll of the dice.

But the Hype goes on !!

Had Governments put into place the necessary legislation to curb and control debt, millions of jobs world-wide would have been saved. So too would savings and share values. The laws of Mergers and Takeovers in relation to debt needs attention. Company Law needs attention---to the extent that it should practically be entirely re-written, to conform with modern business practice. This is especially so when Companies "go public" and float shares on Stock Exchanges.

Accounting practice should change. It needs drastic revision. However the changes to Company Law is required to supercede this. Rigid rules are required to control the requirement of Asset -to-Debt ratios, and debt- to- Cash Flow. Net asset to market share value. The list is endless.

A major problem in the relationship between debt management and cash flow management, is the taking of the "least line of resistance." One cannot be dogmatic about cause and effect and possible solutions. However, had there been the checks-and-balances in place to protect Companies and individuals from their own folly, far less jobs would have been lost.

Were we to pursue this subject for much longer, it would end up as a novel. However, this last should be said in relation to debt, over-priced shares and all else that finally leads Companies to shed labor. Controlled growth and controlled debt and controlled share values, would at it's worst, have resulted in curtailed work hours and resultant partial diminution of income , rather than the wholesale dispensing of labor forces around the world. Let the blame for this be recognized.

DOWN - SIZING :

Job loss is a traumatic experience at the best of times. In "good times" there is the possibility of work elsewhere. In a shrinking economy, it becomes exceedingly difficult. Hold on a moment : Is not "job loss" a result of recession. IT IS -----AND IT ISN'T. It is----as well, an element of recession. The euphemistic term attempts to hide job loss in "softer tones." The point we wish to raise---is---"WAS THIS ALL NECESSARY." Cash flow is vital to determine profit; to pay overheads and to finance and repay debt. Part of the overhead are wages and benefits, and cash flow is vital for this as well. So when cash flow diminishes, one has to look for savings in overheads. What we quibble with, is down - sizing as "a starter"---and not as "the final solution." Does it have to be THE PRIMARY SOLUTION.

There are alternatives. Trying to match savings as a percentage of diminishing income. Working a four-day week saves 20% of weekly wage costs, and one would expect a like savings on "benefits." One would hopefully expect that staff be given the alternative. Accept a lower income, or leave. Even if it be vital to maintain output, the possibility exists, that staff would work the full period, yet accept a lower wage in order that the Company survive. The understanding being that they were attempting to safeguard their jobs.

There surely must be some humanity displayed, even be it by the most dispassionate of people. One "lives to fight another day." Even the most vociferous of shareholders could surely live with a lower, little, or even no dividend for a period in time, knowing that every effort to survive is being made by management AND STAFF. From a purely monetary viewpoint, lower wage costs agreed upon by staff, is way less a cost to the Company than severance pay.

Where down-sizing becomes an element of recession, is in it's chain reaction. It feeds upon itself. Competitors do it as well; and in the end everyone loses, as the consumer market starts to shrink by it's application. What is sometimes evident, is the fact that the size and severity and choice in down -sizing is relevant to the size of a Company's debt load. The more ill-advised the debt load----the higher the priority to down-size

SALES TAXES :

"Targeting" may perhaps have been a better heading. At best, playing with interest rates may hit the outer edge of the Consumer Target. Even miss it altogether. Sales Taxes however-----hit the BULLS EYE EVERYTIME. Surely consumerism means the purchase of goods and services. Yet these are the very things that are penalized by sales taxes. Government, be it Federal or State, penalizes consumer purchases, the very thing they are attempting to revive. How illogical can one get!! Lowering income tax puts more money into pockets, but it lacks "direction," for it can be spent anywhere-but----into consumer goods and services.

Sales taxes however can only be saved----AFTER MAKING A PURCHASE OF GOODS OR A SERVICE.

CURRENCIES AND CROSS-REFERENCE VALUES :

Another important element. Until such time as the World's Nations get together and re-align currency values to conform to "intrinsic value"---both Globalization and so-called Free Trade cannot work. 75% or more of the World's nations are held in economic bondage by irrelevant currency values. However THIS CANNOT BE RECTIFIED until such time as their exportable goods and services have been given FIXED STABLE VALUES.

The movement of Capital from one Country to another, has many underlying reasons. In many cases it has an element of "good" attached to it. Yet in other instances it has a decidedly detrimental effect. We are not going to pursue this at this stage, other than to state that it too becomes an element of recession as it pursues interest rates and "safe haven" in relation to perceived value. It is like taking the vitamins from one's own economic "body", and feeding it into that of someone else's. It deprives one's own economy of nutriment.

It is silly to expect the "have Nations" to share their worldly goods with the "have-not" Nations. In any case, there would not be enough to apportion, to make that a material difference. However, give them an equitable share of WORLD TRADE at EQUITABLE FIXED PRICES in CURRENCIES THAT HAVE MEANING----and the World would witness an Economic Revolution !!!

Recession is a phase. The tide comes in----and goes out. There is a high tide---and a low tide. A spring tide and a neap tide. The moon waxes and wanes. Spring---Summer---Autumn---and Winter. That is the nature of things. A time to thrive--and a time of slow growth. Economies and Economics are no different.

Yet we prepare ourselves for all that are "The Nature of Things,"-----yet neglect to prepare ourselves well for the changes in the climate and nature of the phases of Economies and Economics.

WE WISH IT WERE OTHERWISE