It is the media. Is this answer not buy-able? Then let us see why is media responsible.
Assume that you are in a village of 100 families where in 40 families survive on employment from a garment factory and 40 families are employed in a shoe factory. The remaining 20 families are the farmers who invest their earnings in the garment factory and shoe factory. For some reason, the garment factory is unable to pay the debt that it owes to a bank and hence shuts down one of its unit. If no one knows it (other than those who are legally bound to know it), there will be business as usual. But let us assume that there is a gathering of villagers every evening to discuss the happenings in the village. In this gathering, if everyone discuss about the closing down of a unit by garment factory and some experts warn of possible losses looming over the garment factory, those 20 farmers who keep investing money in the garment factory will stop doing so. The garment factory which is already in trouble, will face additional financial problems because of loss of investments. Because of this, the garment factory may be forced to cut down the operations and lay-off people. The people who are laid off will stop spending and hence stop buying shoes and garments. Because of this, sale of garments and shoes will go down which will result in further downsizing of operations. Thus, the whole process gets into a vicious circle and everyone will be pessimistic about the recovery and job cuts will increase day after day. More the prevalent of pessimism, very less is the chance for the executives of the factories to take them on a recovery path. This is what we call as recession. In our example, the one that needs to be blamed for recession in the village is the evening gathering where people were threatened about the possible failure of the garment factory.
Now, if we get back to our real life economics, who to blame for the recession? We need to blame those who keeps the negative news in an industry alive so much time that it is difficult to put it off. Who does this job? Of course it is the media (both the social media, electronic and print media) which repeatedly remind of the viewers/users about the prevailing negativism in the market. This negativism creates a lot of fear in the common man who is employed in an industry and too scared by the job cuts or losing jobs, the consumers stop spending and starts saving money for the future. This is again captured by the media and run as a 24 hours story. Some more people see this and stop spending and some additional loss of business for the manufacturers.While the consumers stop spending on the consumable goods, their investment goes into gold and real estate and thereby unnecessarily booming these already overpriced markets. This creates price inflation in gold and real estate industry and again this is covered by the media extensively. Some more people start to invest in these sectors which means that much of additional loss of investments in the manufacturing sector.
As we found the root cause, now it is our duty to not allow negativism to prevail. We need to see the blessing in disguise in these tough times. The pessimistic market is a golden opportunity to buy the shares of a good company with strong fundamentals. Instead of making dead investments, the people should invest in shares, bonds, spend money as usual and help the executives and economists in pulling the economy back onto growth path.
