When a recession starts, the economy growth slows down, people get laid off, and therefore, people spend less. The global economy is based on capitalism, and capitalism depends on three core categories: prices, properties, and "profit and loss."
Spending money is like investing money into the global market. When people spend less, there's less money (profit) going around in the market, the economy shrinks. A great example would be what's called "the .inventory cycle". Businesses .make and sell .products. However, they tend to make more than they can sell. The unsold products will be transferred into warehouses and become inventories.
As more and more unsold products start to pile up in the warehouses, businesses start to run out of warehouse space. When this happens they realize that they need to stop producing goods. As they continue to sell but not produce goods, they have to lay off people. What's the point of paying people to do nothing? The people who have lost their jobs can't afford to spend like they used to. Therefore, there's less money being put into the market. the economy slows down. When businesses finally sell off all of their inventories, they realize that they need more workers to produce more goods. And they rehire these workers. End of recession.
This is why many countries are encouraging citizens to spend more so that there will be more money flowing into the global market. Governments are spending billions in creating new job opportunities. However, this may not be enough. Businesses also need to find ways to encourage people to buy more goods.
One of the core categories of capitalism, profit and loss, is often misinterpreted by many. People worry about losing a lot more than making profit. Instead of revising products or services, through innovation, to meet the new demands, .many businesses .decide to lay off its employees first to reduce possible losses.
Well, it's human nature. People tend to bailout when they hear about possible danger ahead. .More .and more people are withdrawing money from their banks. The number of people getting laid off is increasing quickly day by day. Sure you can .probably cut the possible losses, but you also cut the possible profits by reducing the money flowing .within the global economy. .
Worker bees don't have a choice as their stream of income is controlled by their superior. However, we, as business owners, do have a choice. Each one of us is playing an unique part in the global economy. Therefore, each one of us is also responsible for anything that's happening to the global economy.
Are you geared up to fight the recession? Or are you just bailing out, hiding and waiting till the recession ends?
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