Recession waxing and waning before looming

Maswood Alam Khan

Analysts in the capital markets talk in esoteric and ambiguous terminologies when the market is volatile. They carefully watch their tongues so that their words describing the volatility don't fright the investors. Phrases like 'stock crash' and numerals like '1929' they fear to utter as the word 'crash' may cause shareholders stampede and the number '1929' may remind people about the 'Year 1929' causing panic among consumers and investors. It was, as everybody knows, on 29 October, 1929 when $30 billion (ten times more than the annual budget of the then US federal government, far more than the US had spent in all of World War-I) had just evaporated into smoke from the US capital market due to stock crash.
   Investors before buying shares judge the company's health profile not only by their audited income statements and periodical financial reports; they also read fellow citizens' mass behaviour and decipher economic messages hidden behind each political event. Investors in USA even shadow the Chairman of the Federal Reserve for a clue--how he talks, how he smiles, how was his facial expression after his attending a vital meeting, what brand of coffee he prefers etc.--to forecast their shares' price that may fluctuate on Federal Reserve's decision on interest rates. But, problem arises when investors get panicked and a domino effect of a panic makes economic theories and Federal Reserve's interventions all futile, leaving the market to play on a theorem known as 'chaos theory' based on chaotic market behaviour.
   Last Monday US crude oil was sold at $ 88.92 a barrel--a drop of 10 per cent price in a matter of 18 days. MSCI's main world stock index (a benchmark gauge of stock markets globally) was down 2.9 per cent. The pan-European FTSEurofirst 300 was down 5.8 per cent. Nikkei average (Japan's benchmark) was down by 3.9 per cent. Gold was sold at $ 868.60 per troy ounce compared to $ 881.90 on Friday and $ 914 last week. Other commodities, such as precious metals, also plunged. Many indexes around the world were more than 20 per cent below their recent cycle peaks. So was on Monday the picture of USA, the biggest consumer of the world in the backdrop of the possibility of an impending US recession in the wake of a downturn in property market that has exposed banks to billions of dollars of losses and caused a generalised tightening of credit to business and consumers. The word Monday, however, brought back to the losers a chilly evocation of Black Monday of October 28, 1929.
   On Wednesday US Federal Reserve slashed the short-term interest rate by three-quarters of a percentage point with a view to keeping plummeting stock markets around the globe from threatening the international economy. The Dow Jones industrial average was down 218.91 points, or 1.83 per cent, at 11,752.28. The Standard & Poor's 500 Index was down 28.31 points, or 2.16 per cent, at 1,282.19. The Nasdaq Composite Index was down 72.36 points, or 3.16 per cent, at 2,219.91. After initially falling nearly 450 points on Wednesday morning, the Dow Jones Industrial Average was down 157 points or about 1.3 per cent--relatively a minimal decline compared to 9.3 per cent fall in the Japanese stock market. Lesser fall of the US market was attributed by market observers to the Fed's emergency rate cut. Speculators, such as hedge funds, are becoming nervous. The global equity market weakness is prompting currency investors to liquidate their risky positions and demands for safe-haven government bonds are rising.
   Such falls sometimes signal to general investors that it is time to buy. To consumers like us downward prices of commodities and services also sound good. But the descending trend, if continued for a few weeks more, will send an ominous signal to an economist: people would soon stop buying goods and services and start selling whatever they assume may further depreciate in value in near future, the first symptoms of a recession.
   A slide into recession initially may herald sweet news for traders on gold as they know Federal Reserve in their attempt to thwart recession would go for aggressive cutting of interest rates that would weaken the dollar--making dollar-priced gold more attractive as a safer investment. With increased demand for gold as safe-haven its price is also due to go up. But, surprisingly the price is now falling. Maybe, investors are downloading their gold reserves en masse to buy stocks in the bearish markets on the expectation that much more aggressive slashes of interest rates in coming days would turn the markets bullish for stocks to yield a return higher than that from gold. But, if stocks fall precipitously for long their bridge of dream while crossing the river of fate will be burnt in the midway, a telltale signature that recession is knocking just around the corner.
   Fear of recession in USA must chill blood of millions of Bangladeshis whose mere survival hinges on $3 billion worth of readymade garments exported to USA every year. Bangladesh is already struggling in competition with giants like China and India to hold on her export share in USA. A slash in export of RMG to USA in the wake of recession will wreck havoc on our employment and foreign currency earnings at a time when our people are already suffocating with unending price hike of daily necessities.
   With US economy contracting US customers would be outsourcing for cheaper goods and services in third world countries like India, Pakistan, Vietnam and Bangladesh. Vietnam is now in an advantageous situation as their export-oriented industries--which are specially insulated against any extraneous or political disturbances--are producing goods and services at cheaper price than in any other country in our subcontinent.
   Bangladesh, as an emergency measure to fall back on, should weigh up alternative products and jobs which are essential but expensive inside USA, should RMG exports to USA plummet. IT sector is one such area where Bangladesh, like India, may make a dent in US market. Indian software and services exports to USA jumped 33 per cent to $31.4 billion in March 2007 and may hit $60 billion by 2010.
   During tidal cycles sea water rises up and up and stops during high tide at a point called slack water. The tide then reverses direction and sea water falls down and down and stops during ebb tide at a point also called slack water. Tides visit us in semidiurnal pattern--two high tides and two low tides each day.
   Likewise a nation's economy also follows a somewhat regular pattern of expansion and contraction. The economy will typically expand steadily for six to ten years and then enter a recession for six months to two years. The point where the recession begins is known as a 'peak', and the point where it ends is known as a 'trough'. Following the trough, the economy expands again toward another peak. Economists call the period of time between two peaks a 'business cycle'.
   Anything of any kind may spark recession. Recession may, for instance, be kicked off by over-production--a situation in which the supply exceeds the nation's ability to consume. Confidence level of millions of consumers and producers plays another vital role in a recession. When consumers do not feel confident about the economy they buy less stuff. In response to decreased demand, producers lay off people and decrease consumption of raw materials. Unemployed workers have less money to spend, so demand decreases further. Employed workers fear they will lose their jobs, so they spend less money. Investors fear the value of stocks will decrease, so they are less willing to invest in new companies. The whole economy is thus trapped in a vicious quagmire.
   History has proven that an economy will not keep expanding indefinitely--eventually it will contract for a while. With economy contracting thousands of different elements move in a downward spiral with snowballing effects. For a plethora of reasons an economy may slow down and if such a slowdown continues for a prolonged period, say for six months, economists consider the limbo a recession that visits every nation in a periodic order the way sea waves splash the sea beaches in a rhythmic order of high and low tides. If the recession lasts long enough, and is particularly severe, it is known as depression the way rising sea water engulfing inlands for a period of time is known as flood.
   When a recession grips a nation the government, especially in a free market economy, cannot single-handedly control the sliding economy. The course of a nation's recession is controlled by the actions of everybody living in the country. Anything influenced by millions of people is beyond the control of one person or a group. Nevertheless, the government tries to restore public confidence by taking some fiscal and monetary measures. Tax cuts, increased public spending, unemployment insurance etc. are few of the fiscal measures and allowing commercial banks to reduce their reserve ratio with the central bank, lowering the discount rates etc. are few of the monetary measures that may elevate public confidence in the economy and help ease the recession.
   Investors all over the world are now watching the Wall Street with some trepidation and are reassured neither with Fed's slashing of the short-term interest rate by three-quarters of a percentage point nor with a package of $150 billion in tax cuts and other fiscal stimuli President George W. Bush has proposed as fears are deepening that a possible recession in the United States would have knock-on effects for other economies.
   A key question pundits and economists of late are asking: "If America sneezes, does the world still catch a cold?" The answer is probably "No, not that much." The emerging countries in Asia and the Middle East weathered many fowl economic storms in the recent past, thanks to their huge reserves and steady GDP growth compared to many western countries. Some of the state-backed investment funds of Asia and the Middle East had recently even helped recapitalise a number of struggling banks in western countries.
   In the end, time has proven that attitudes and economic factors ultimately shift, and every recession is a temporary phenomenon. Eventually, things turn around and an upward spiral is re-established the way flood water recedes and lands resurface for life to restart with renewed vigour. Hope, with recession stalking the western hemisphere 1929 will not knock at all the doors of the whole globe!
   The author is General Manager, Bangladesh Krishi Bank He may be reached over email: maswoodalamkhan@gmail.com

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Rayyan Kamal

A few weeks after Harvard University unveiled its astonishing new financial aid policy, Yale has followed suit. It has reduced the parent contribution of students of families making less than $60,000 to zero. For families making between $60,000 and $120,000, the parent contribution has been reduced to 0 per cent to 10 per cent of household income. As for families making between $120,000 and $200,000 per year, the parent contribution has been slashed to 10 per cent. The student contribution for those under financial aid has been reduced to $2,500 from $4,400. Yes, it seems that even families making six-figure salaries need financial aid.
   There was good news for students paying full tuition as well - the university announced that tuition, room and board next year would be fixed at the expected level of consumer price inflation of 2.2 per cent from now on. Costs have increased by 5 per cent over the last three years. However, administrators fear that professors, whose salaries usually rise at a faster rate than inflation (thus, explaining the high rates of tuition increases in the past), will suffer as a result of this new policy. Perhaps this is why Yale University President Levin told the Yale Daily News that, though tuition would be pegged to inflation next year, "we're not committing further out in the future"
   Who will foot the bill of all this generosity? The Yale endowment, of course. The university will undergo a 40 per cent increase in spending from its $22.5 billion endowment. Previously considered one of the most miserly colleges when it came to spending from its endowment, Yale has set a minimum endowment payout of 4.5 per cent.
   In absolute numbers, Yale's new financial aid policy came shy of Harvard's. Though the university increased its financial aid budget by $24 million, $33 million was the amount by which it should have increased the budget to match Harvard's initiative. However, this disparity might be explained away by the fact that Yale has fewer middle and low-income students than Harvard, thereby reducing the amount of financial aid needed.
   Here is market competitiveness at its finest - pitting Yale and Harvard against each other in a race to see which can be more generous. The hope is that other colleges will follow suit. However, some are complaining that Yale's and Harvard's actions have placed unnecessary strain on less wealthy colleges. The Dean of Admissions at Dickinson College stated that he was approached by several angry parents after Harvard released its announcement. According to him, they wanted Dickinson to reduce tuition for their children, a demand that would be impossible to meet, given Dickinson's financial situation.
   Another question is how successful this new financial aid policy will be in snagging middle-income admits who might have otherwise chosen to matriculate at a different college. Some have argued that families making six-figure salaries aren't as strapped for cash as these financial aid policies perceive them to be. For these families, the amount of tuition might not be the overriding factor when it comes to making a college choice.
   But I don't think they're complaining.
   Rayyan Kamal is a sophomore at Yale University.

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Dr. Turin Chowdhury

A small amount of table salt or sodium is essential for our body. Our body requires sodium to regulate blood pressure and blood volume. It is also important for the functioning of muscles and nerves. Sodium helps regulate acid/alkaline balance (electrolyte balance of the body), water balance (the amount of fluid inside and surrounding the cells), the heartbeat, muscle contractions, sugar metabolism, etc.
   Sodium generally is present naturally in the majority foods. When we think about salt, most of us think of the salt in our kitchen. Some of us also have habits of having salt shaker in the dining table to add salt during the meals.
   Most of the sodium in our diet comes from processed foods. Processed foods specially canned foodstuff and dry packed instant foods are all examples of foods that contain added sodium. The craze of the 20th century, 'fast foods' are generally very high in sodium.
   Some medicines and other health products also contain sodium, such as laxatives, aspirin, mouthwash, toothpaste, etc. But supply relatively small amount of sodium.
   
   Optimal amount of daily intake
   It is recommended that we should consume less than 2,400 milligrams (mg) of sodium a day. Salt generally contains 40 per cent sodium. So 6 grams of salt contains 2400 mg of sodium that is the same as about 1 teaspoon of salt. This optimal estimate includes not only the salts used during cooking or consumed at dining table but also salt from all other sources which we do not see.
   The salt beyond our eyes
   Most of the salt we consume remains hidden. We do not put that salt directly by ourselves. Processed or restaurant foods account for more than three-quarters of all sodium we consume. In this era of busy daily life instant and readymade foods are a big part of our daily food habit. And the majority of these food items contain considerable amount of salt. Studies regarding the sources of sodium reported that "about 75 per cent comes from food processing, about 15 per cent is from cooking and about 11 per cent is naturally occurring, and less than 1 per cent is from water".
   
   Salt and hypertension
   Consumption of too much salt can increase the risk of hypertension because the sodium in the salt makes our body retain more water; as a result our blood volume increases. And the extra volume in the blood vessels creates more pressure. Normally our kidneys remove excess sodium from our body. This helps to keep our blood pressure at a normal level. But too much salt can progressively damage our kidneys, so they consequently could become less able to remove the excess sodium. As we grow older our kidney also becomes incapable of removing salt thus increasing risk of hypertension.
   For the people under medication for high blood pressure problem the high salt intake may reduce the effectiveness of medication regarding blood pressure control. People who already have hypertension, a diet high in salt may further increase their risk of heart disease, stroke and kidney damage.
   Cut salt to reduce the risk
   Reducing sodium intake is one of the most important dietary changes that we need to make in order to fight high blood pressure problem. Researches examining the effect of dietary sodium reduction on blood pressure levels have demonstrated a reduction in blood pressure in both people with and without hypertension.
   
   Reducing salt in our diet
   We have to plan our fight against salt by initiating some behavioural change in our diet habit. The following steps would be helpful in out target for salt reduction.
   1. Remove the saltshaker from the dining tables. Make a habit of not using added salt during the meals.
   2. We can make an attempt to include increased amount of fresh fruits and vegetables in our daily diet.
   3. Make a habit of using fresh poultry, fish, and lean meat, rather than canned or processed types.
   4. Remove salt from recipes or use minimal amount whenever possible. Cook with low-salt ingredients like herbs, spices, and salt-free seasoning blends. Cook rice, pasta, noodles and cereals without salt.
   5. Use less sauces, salad dressings, instant food mixes and products like instant noodles, instant soups. Cut back on 'Fast Foods' like burgers, pizza, etc.
   6. It is better to rinse canned foods, such as canned fish and meat, to remove some sodium.
   7. If we have to consume canned vegetables or fruits, better use plain frozen or canned ones with no added salt.

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Death anniversary held

Third anniversary of death of noted social worker Late Jahera Khatoon Choudhury was observed last Tuesday.
   Late Jahera Khatoon Choudhury founded the Falgoonkara Charity Order (FACO) at Comilla. In 1956 she established Falgooni Library at her home-stead which now has a rich collection of over five thousand books, journals and research reports. She was the daughter of Moulvi Muzzafer Ali, a prominent social worker during the British rule in the forties. Her husband Late Abdus Satter Choudhury was a police officer and a recipient of the Coronation Medal of Queen Elizabeth II and obtained Presidents' Police Award of Pakistan.

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