Finances As It Relates to Depression

You thought the great depression of the 30s was over, didn't you? And proceeded to live and spend as if there was no tomorrow and as though the coffers would never get depleted. While it is true that the governments and central banks of some countries were carefully monitoring economies, creating new economic policies to prevent similar crises; it still did not stop us from being hit. History does repeat itself, after all.

Now that a second depression is upon us; obviously, the measures taken were not enough. Or, perhaps it is more a question of working within the measures and limits that need to be placed upon us. In any case, we now find ourselves in a crisis situation and are scrambling around to recover from the depression. Our accounting, finance, and the very way of life has been hit and we have to deal with it. All paper investments are becoming lost causes, leaving only the commodities behind. The 1930s depression was largely caused by inflation, gold standard, liquidity etc., whereas today's depression can be blamed on a decline in productivity, investment, mortgages, outsourcing and unemployment. Underlying all the different c causes is the one factor - - overvaluation. This overvaluation has been on paper assets and mortgages. This is leading to major changes in the way accounting is going to be regulated.

The million dollar question is whether we should depend on economic forecasting. As of now, we are lead to believe that unemployment will see a vast improvement in 2012. It is also believed that the property market will soon stabilize. It is possible the market will never see the kind of phenomenal growth it did in recent years, the housing boom has been a huge factor in this depression. Financial Accounting is critical to withstand this crisis. Rather than depend on forecasts and a blind hope that thing s will change for the better, a serious look at personal and public finances is in order. Recession can be simply a slowdown of economy that seems to be never ending. Cost cutting and saving in every sector may seem like the proverbial drop in the ocean; but, it is a start. Over and above this, managing income is the key. When your capital budget is off-balance; look for the answer in expert accounting and management. You will have to review the costs, assets, inventory, debts, cash flow and work out a structured reorganization of your capital.

In layman's terms - restructuring involves:
• Get out of debt;
• Tighten your belt;
• Build emergency fund;
• Consult Finance professional

These basic steps ought to hold good for personal finances as well as public, such as financial institutions. It is very easy and most human to adopt an attitude of denial or being selective in what you see and believe. But, it could very well be the cause of your downfall too.

Recession is not selective; but, it does affect most those who are not prepared for that eventuality. In fact, you don't need to have a recession to re-assess your finances. Even in good economic times, we find ourselves slapped with a sudden outflow of cash. Soon, we forget the shock of that and go back to spending all the spare money. If it is a matter of survival of the fittest, the fittest one would be always prepared; following the Boy Scout's motto to the letter. The smart one would have a savings buffer that prevents you from seeking a loan each time.

A Financial Consultant would not only manage your current financial state; but, also plan strategically on your future ensuring you remain one of the survivors. Recession can be borne and you can get out of it with your security intact. You may have a leaner portfolio; but, it can be a healthier one.

Sudha writes on matters relating to tax and finance. Check out Eskinde's Accounting &Tax for solutions in tax and finance matters.

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