Recession - the term which held hostage the newpapers for a long time seems to be on its way out. I am carefully using my words, because these economic terms never follow predictions. It seems that recession is on its way out, but many are still skeptical about the same. Fuelled by increased government spending & stimulus packages, the industry has shown signs of recovery, but many experts still believe we are still not out of the blocks.
Here is a small analogy for you all... Imagine the following...
BEST Bus - Economy of America
Conductor of the Bus - Government of USA / Federal bank
Driver of the Bus - Fundamentals of the Country
Speed of the Bus - GDP growth
Passengers on the Bus - People of the country
Confused.. Please bear with me.. things will get clearer as we discuss further.. :)
BEST bus drives its way through ups & downs on the road, makes stops & depicts the journey from underdeveloped to developed state of economy. Pre-recession period can be attributed to BEST bus being running on Western Express Highway, growing at great speed. Everything is running fine, somewhere down the line the BEST administration starts offering tickets on Credit. The trend comes in vogue & most of people stop carrying cash & board the buses with credit cards..
Somewhere down the line, credit buildup becomes unmanageable, the speed of the BEST bus slows down. GDP growth falls, liquidity gets squeezed out of the system. The conductor doesnt have much cash in its kitty.. declining revenues, & expenses on the BEST adminnistration the same.. Here comes the recession season into the picture..
Now visualize some people in the bus with bad credit cards on their pockets.. the credit cards not accepted by the BEST conductor.. but still they have to purchase the tickets..Now comes the case of bailout... the conductor on the bus gets its cash from the passengers on the bus who purchase the tickets in cash..ie... taxpayers of the economy.
Some who could not impress the conductor with their credentials.. had to get down from the bus..i.e. file for bankruptcy.. e.g- Lehmann Brothers & many other banks..
Some who could impress the conductor.. were bailed out. given credit by the conductor.. allowed to stay on the bus.. e.g- Citibank & may others.. From where does this bailout money come from -- obiviously from the cash from taxpayers...
Will the bailed people pay back to the conductor ?? - Presently there seems hope that they will pay back.. if they do.. the conductor can be credited to have done a extraordinary job.
This type of bailout approach comes in from the keysenian economics.. which says that government can intervene & change the course of the economy growth & cyclical nature of the economy can be diluted so as to make the impacts of the cycles in the economy bearable..
There could be many anamolies in the analogy assumed here, but for the sake of understanding, i think explains the "Recession & Bailout" in the "BEST" possible way... :)
Please do drop in with your comments & also let me know what you think of the "BEST" buses ... :)
Simply superb... though the unintellectual "me" would definitely have missed somethings, still whatever i could get was enjoyable & thought provoking. And what else can u expect from the TOPPER of the BATCH. :) keep posting dude.... we are eager to read more.
ReplyDeleteNice analogy between bus and the economy of the country. This made me think about related analogy.
ReplyDeleteThe bus which was mentioned above could be hyped BEST Volvo AC coaches... There it was told to have all 'Good' facilities. But as we all know to run a Volvo bus, people have to spend more in tickets (costly operational cost)... so what they did, is to send some of their workers to age old, but sturdy Ashok Layland Bus(aka normal bus) so that people dont have to spend more at larger scale. We can take this as a outsourcing to India/China. Now as people in volvo bus are said to be rich, conductor gave them good credit. As there was a lot of credit customers and hence they found cash crunch for the bus, regular servicing was not done and bus was running with regular breakdowns.
At the same time, as the normal BEST bus which is full of people and they have cash in hand, they found let us also run slowly bcoz with less customers and high tech bus, if Volvo is not running properly, we may also fall down. But that was not the case. Regular bus has got money and found that dear was not real one.
It was running fine and was also improving the bus condition by putting better seats.
Meanwhile, conductor of the Volvo bus was frightened from the regular bus stating that that bus will overtake my business. So they are thinking to control regular bus speed by fetching people from there and thinking to improve their own condition.
Noe let us see, who is going to win the battle and final war....
summary pls..
ReplyDeletegud one...
ReplyDeleteWhat an excellent analysis of Pankaj Udhas's Free concert and now an analogy between Best and America. I hope after reading it even a layman can understand the criticalities of Recession.
ReplyDeleteNice work done
Keep Posting
g8 work explaining a complex problem of recession by the simplest possible ' BEST' example... Almost all of us would have commuted through 'BEST' but who can imagine it could also be used to explain something as complex as recession era so beautifully... really commendable post... keep going.. :)
ReplyDelete