Recession- What it means? Part I

Pic 01: Late USA President on recession definition. (By the way, his previous occupation is an actor!)

“Recession is when your neighbour loses his job, depression is when you lose yours.” (Ronald Reagan, 1985)

Youths favourite hangouts -From Left to right:

Pic 02: Starbucks cafes

Pic 03: Papa Rich cafes

I observed many youths ever so frequently patronise Starbucks, McD, Kopitiam in Subang SS15 areas. I can’ help it but think, do these people know the concept of recession? Perhaps their pocket money is unaffected. Ignorance may not be bliss, as for the Law often use “Ignorantia (juris) non excusat” which translates from Latin “Ignorance is no excuse”. Recession is bad and scary, indeed!

Year 2008, you have undoubtedly heard the term "recession" mentioned on media (unless you are too busy indulging in Female, Cosmo, Male Fitness Magazines). You've probably heard of global recession starting in United States with sub-prime property crisis to financial meltdown that spread like an economic H1N1 virus across globe.

How destructive is the recession?
North America’s economy has loss US$750 billion in output of goods and services. The Stock market was badly hit with loss capitalisation of US$1.2 trillion. To add to the pain, property prices and financial crisis in the banking finance sector cost the largest economy another US$2.1 trillion and over US$1 trillion. President Obama tried to stemmed the losses by injecting a paltry US$797billion, all of which is too little and too late.

On home front, Malaysia’s economy shrunk by RM37.6billion (US$1=RM3.5) for year 2009 thusfar. That is equivalent of providing free electricity, telephone and Astro for the entire population for the whole year!

What exactly is a recession?

First off, to understand what a recession is, you need to understand that economies go through periods of growth and contraction.By textbook definition a recession is two consecutive quarters of negative GDP growth. GDP is "gross domestic product", which is defined as "the total market value of all final goods and services produced within the country in a given period of time." So say in one quarter of year, the economy sells 1,000 movie tickets, but the next 2 quarters it fell to say 900 and 750, then it is a contraction which is recession. GDP growth is measured, as well as real personal income, employment, industrial production and wholesale-retail sales.Second - based on that strict definition, in North America the 2001-02 recession technically wouldn't have been a recession, as there weren't two consecutive quarters of negative GDP growth. But it was difficult year where contraction happened in non-consecutive quarters

To be honest, there is no real rock-solid formula in terms of determining whether or not we are in a recession and for how long it has lasted. If there was a rock-solid formula, we wouldn't need the Malaysia Industrial Economic Research, Malaysia or National Bureau of Economic Research, USA to tell us that we are in a recession.

"A recession is a period of reduced economic activity. It is a contraction of the business cycle which is marked by a significant decline in economic activity which lasts more than a few months."Malaysia has suffered through a number of recessions since the beginning of 1980, 1985, 1997-98 and now the present recession in 2009.

Opportunities amidst threats
The Mandarin word ‘wei ji’ means there is opportunities amidst threats or bad news. This is something that youths should exploit, for that matter all of us. To the man on the street, recession is a time where jobs are scarce, money is tight and future is uncertain. To my horrified observation, then why are youths spending behaviour is so wild as if treating recession as nothing more than a road signboard? Youths should seek opportunities now by investing in say Stock Market or Properties when the interest rate on loans are low and prices are depressed.

Pic 04: Virgin Founder - Billionaire Sir Richard Branson

Pic 05: Virgin's latest succesful venture into Airline Industry.

Yes, now is the time to invest and pick up choiciest opportunities. Richard Branson, founder of Virgin Group said, “If I ever going to invest, I will only do so only during recessions.”

Conclusion
On another note, how can factories producing high quality products which normally enjoy high demand could shut down? Isn’t it logical that consumers reward the strong producers by voting i.e. buying their products that translates to ongoing demand? In other words, why would perfectly healthy companies not survive in recession? Based on above excerpt, is depression worse than recession? Can the government do something about it?

This I will discuss in my next article.