All posts by richardatieh77

Economics

Just in Time Process

Just-in-time (JIT) is a management philosophy that strives to eliminate sources of manufacturing waste by producing the right part in the right place at the right time.  Waste results from any activity that adds cost without adding value, such as moving and storing.  JIT (also known as lean production or stockless production) should improve profits and return on investment by reducing inventory levels (increasing the inventory turnover rate), reducing variability, improving product quality, reducing production and delivery lead times, and reducing other costs (such as those associated with machine setup and equipment breakdown).  In a JIT system, underutilized (excess) capacity is used instead of buffer inventories to hedge against problems that may arise.

Key Elements of JIT (advantages):

  • Continuous improvement.
    • Attacking fundamental problems – anything that does not add value to the product.
    • Devising systems to identify problems.
    • Striving for simplicity: simpler systems may be easier to understand, easier to manage and less likely to go wrong.
    • A product-oriented layout: produces less time spent moving of materials and parts.
    • Quality control at source: each worker is responsible for the quality of their own output.
    • Poka-yoke: foolproof’ tools, methods, jigs etc. prevent mistakes
    • Preventative maintenance, Total productive maintenance: ensuring machinery and equipment functions perfectly when it is required, and continually improving it.
  • Eliminating waste. There are seven types of waste:
    • Waste from overproduction.
      • Waste of waiting time.
      • Transportation waste.
      • Processing waste.
      • Inventory waste.
      • Waste of motion.
      • Waste from product defects.
  • Good housekeeping: workplace cleanliness and organization.
  • Set-up time reduction: increases flexibility and allows smaller batches. Ideal batch size is 1item. Multi-process handling – a multi-skilled workforce has greater productivity, flexibility and job satisfaction.
  • Leveled / mixed production: to smooth the flow of products through the factory.
  • Kanbans : simple tools to `pull’ products and components through the process.
  • Jidoka (Autonomation): providing machines with the autonomous capability to use judgment, so workers can do more useful things than standing watching them work.
  • Andon (trouble lights): to signal problems to initiate corrective action.

Just in Time disadvantages:

  • Expected stock out
  • Stock out will lead to loss of customers
  • Delays in delivery due to the disability to control on the distribution channels
  • The disability to have economies of scale in purchasing due to high purchased units.

Just in Time in general is in general a successful strategy in order to minimize cost and increase profits. It was tested in Japan in the past and it proved its success. The basic issue in Just in Time is trying to keep inventory of goods as small as possible in order to decrease the carrying cost and produce upon customers’ demand exactly without keeping huge inventory of raw materials and finished goods and at the same time to avoid stock out which will result in the loss of customers.

Reference:

“Just-In-Time Production Systems: Replacing Complexity with Simplicity in Manufacturing Management”, Industrial Engineering, October 1984, pages 52-63; and Applications of Single-Card and Dual-Card Kanban, Interfaces, August 1983, pages 56-67.

Economics

Lebanese Economy Highlights & Elections

The Lebanese parliament Elections are on the road and will be executed on the 6th of May 2018 which is a positive indicator for the Democracy in Lebanon. It is normal for all candidates to use all available weapons that can help them to succeed in their campaigns and collect the highest number of members in the future parliament but what is surprising us as observers that they are using the weapons that are the prove for their condemnation which are corruption and the bad economic situation.

I wrote this article from an economical point of view not political but it is well-known that Public Management is directly related to Economics and cannot be separated. I am quite surprised when all of them are talking about Lebanon bankruptcy before the elections including people who were contributors to the political decision during the past 13 years after the Syrian Troops withdrawal from Lebanon and lot of them were also part of the political regime during the 15 Years of their official occupation of Lebanon where all the political decisions were taken from Damascus directly.

The truth that Lebanon was put on the road for bankruptcy since the end of the Civil war in 1990 and this process was tailored long time ago that is why it is not a surprise that the Lebanese economy is shrinking. The process started when the Syrian regime sunk the Lebanese markets with their goods and labor force, the refugee’s problem today is not bad as it was promoted, because we used to have more than 500,000 Syrian workers in Lebanon since 1990 and the remaining are the new refugees who put pressure on the Lebanese economy and infrastructure and lead to big losses to the economy.

We have a deficit in the Trade Balance in Lebanon long time ago before the debt severe increase especially in the last 13 years but it was under control. The truth that all the debt accumulation was due to interest and inability to decrease the deficit in the public budget to start repaying the debt but what the Politicians did earlier are funding the annual deficit in the budget from new loans and rescheduling the old loans to pay it later. Our expenses are higher than the government income.

The main causes of waste in public resources are many and can be but not limited to the following:

  • The majority of the militias’ members who were involved in the Lebanese Civil War were integrated in the public departments such as Electricity, Ministry of Finance, National Social Security Funds, Army, Port of Beirut, and Airport ….. And the majorities of those people are not well-educated and cannot fulfill the job requirements and some of them are getting paid without work. The government payroll schedule is very long and heavy and can destroy any economy. The Lebanese economy cannot afford to solve politicians’ problems and fund their Elections campaigns. The majority of the demonstration and strikes are done by those people who are still part time employees and now they are asking the government to make them full time employees. The problem is that the majority of them are not qualified for the job they are doing and they are refusing to go through exams in order to choose the qualified staff.
  • The funds that we got from all the International Conferences that were held to help the Lebanese economy were evaporated in non-productive projects and went without increasing the growth in the economy by any means so it is better not to take it from the beginning because those loans lead to the problem that we are facing now.
  • Fake projects which were done in the past 28 years where 90% of funds allocated to those projects were stolen by the contractors who are supported by politicians and special Departments in the Government. It is very easy to look at all tunnels and bridges all over the Lebanese Territories and you can see that the majority of those tunnels and bridges ends up with a bottle neck i.e., they moved the traffic jam few meters only instead of solving the problem.
  • All the Funds that we got in the past should have been allocated exclusively for investment in infrastructure such as Internet, Dams, Railways, airports. Electricity is destroying the country and till now and after 40 billion Dollars of corruption we still paying two electricity bills. Internet in Lebanon is the slowest in the region, Mobile Bills are the highest also in the region. We are losing big multinational companies due to slow internet and telecommunication industry. Lebanese immigrants and who are working abroad succeeded in all industries and all sectors in the countries they are working at but still we are failing to build our mother country.
  • They are saying that the Lebanese Banking sector is strong and this true because the Lebanese government is their major client and they are paying very high interest for the lent amounts and the new surprise that bankers this time are candidates for these elections which is simply conflict of interest and should not be allowed.
  • The Central Bank Governor stopped suddenly all housing supported loans due to lack of budget for supporting such activities. The truth that this program was suspicious because employees of any level cannot benefit from such loans. The ceiling of those loans is more than $500,000 which means that the down payment should be at least $125,000 and the monthly installment should not exceed one-third of the employee income which is not applicable for 95% of employees in the Lebanese market and even in the Gulf region. Lebanese Bank are doing arbitrage from those loans in addition to all Treasury Bills that they are supporting through lending the Lebanese Government at high rates while paying the depositors lower rates and getting a guaranteed profit margin from these activities.

Taking such decision is very harmful for the economy and the real estate sector because the majority of the Real state contractors are selling small to mid-size flats which depends a lot on Central Bank supported loans and Iskan loan for financing such activities. This action may lead to increase the supply and decrease in demand for such flats which will lead for sure to a decrease in prices. If the collapse happens in this sector, the banking sector will face a major problem regarding the high value mortgages because the flat value will diminish and the market value will be lower than the mortgage value so they will prefer to stop paying their loans and buy new flat with half its price. Such scenario will be disastrous for the Lebanese Economy and the banking sector because the Commercial Banks will ask the Central Bank for the support and the Central Bank cannot afford large number of default clients and big losses in the value of the mortgages and this will lead to Dubai and USA Real Estate crisis.

  • Governments all over the world transformed to E-Governments and changed the whole process to digital one due to its huge benefits to the economy which can be summarized as follows:
    • Solve the corruption in the Public Sector
    • Decrease Fuel consumption
    • Decrease Traffic Jams
    • Decrease Parking Expenses
    • Decrease the time needed to complete the transactions without the need to spend valuable time waiting in long queues and the public employees with very bad attitude although we are paying their salaries from the taxes deducted from our salaries.
    •  Decrease human error due to personal assessment either intentional or not.
    • Increase transparency in the Public Sector
    • Possibility for tracking transactions online without the need to use phone calls without feedback and doing several visits without getting your transaction done.

The Lebanese economy cannot survive under this pressure and may collapse suddenly without any notice and we may get to sleep one day and wake up the next day with a severe depreciation in the Lebanese Currency against the Dollar and the Greece scenario is not far away from Lebanon. Electricity and Telecommunication problems should be solved, corruption and Taxes evasion shall stop otherwise our economy will collapse all of sudden and nothing will save us unless they take our oil as a collateral for our debt and then outsiders will put our Monetary and economic policies.

Economics

Production and Resource Depletion

Life is  a race between Production and Resource Depletion

Natural resources are very important for the continuation of life on earth and without it life will become very difficult. Natural resources are like fuel oil, copper, leather, and all kinds of metals that can be found on earth in spite of water, wood, animals…

Natural resources are becoming more and scarcer on earth due to the high consumption and usage of these resources in production. We know that these resources are necessary for all industries to produce useful products for human beings that are necessary for the continuation of life but the increase of total number of people on earth due to the decrease in death rates and development of medicine in this century and the century before.

People are finding themselves forced to fight for these resources in order to produce and enhance their balance of trade of their nation. There are many wars done in the past and today because of natural resources especially fuel oil. so many people say that the major reason for the invasion and Iraq by the US troops is to control the supply of oil in the region because Iraq has the second largest fuel oil reserve in the world but globally the united states f America say that their target from invading Iraq is for democracy and liberty which is not true at oil.

Lebanon does not have any natural resources except water which is the main purpose for Israel to invade him in the past because Israel water resources are limited. Adolph Hitler in the past invaded the Scandinavian territories to secure steel from Sweden which has very big steel resources in the world and at the same time invaded Ukraine to get fuel oil and wheat for CormIsland there.

Natural resources and its scarcity is considered one of the most problems that human beings faced and still face and it will still face him in the future. There was in the past a global thinking that natural resources with disappear in the future all over the world. So many countries nowadays are facing problems concerning it deficiency to secure their needs from products and commodities for their people due to the scarcity in resources needed for the production of these products. The economic problems that the world is facing are due to the scarcity of economic resources. The world is facing so many economic problems which are:

  • Energy problem
  • Food problem
  • Debt crisis
  • Environmental pollution

These problems will affect negatively the level of economic development which is also affected by the efficiency in using the economic resources. The depletion and misusing of natural resources in an effective way affect a lot on the capability of countries to continue their economic development in the future.

Production factors are:

  • Human resources
  • Capital
  • Natural resources
  • Entrepreneur

There are three factors that create the economic problem:

  • Scarcity
  • Efficiency
  • The big number of human needs of products and commodities

These three factors can eliminate or enlarge the economic problem because the need for these resources in much bigger than its development. people on earth is increasing while natural resources are decreasing and the big fear is that these resources will disappear in the future, that is why countries must take care of these resources and use it efficiently to produce the biggest number of products with minimum resources.

This problem will last for ever and human beings will always be careful about finding new substitutes for these resources like using water resources to generate electricity instead of fuel and plastics instead of iron and metals. By this way they are trying to decrease the usage of these resources and find suitable substitutes that last for ever like water, solar power and wind.

There is another important point concerning the relation between production and resource depletion is that production cost is mainly affected by the natural resources prices and existence. Production cost in Lebanon is very high because of the scarcity of natural resources in Lebanon and the need to import it from abroad at very high prices while production cost in other countries that has natural resources is lower than Lebanon which gives them power and competitive advantage in the market they are selling their products in.

We can say that economic, natural resource has a strategic effect o countries because it will give them power (economic and political power) but the main important thing here is to use their resources efficiently in a way not to lose that advantage in the future when their resources gone with the wind.

Economics

Economies of Scale Concept

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imagesEconomies of scale concept is an old concept but the majority of the companies knew about it through education and sometimes through trial an error, this concept as a summary means that as the quantity produced of each product increase , the unit cost per product will decrease thus the contribution margin will increase and the sales revenue also will increase.

Due to the tough competition nowadays locally and globally, the need to apply this concept becomes necessary for companies especially if they are competing in a very competitive environment where price wars takes place and price competition is played in small margins where every penny may affect the decision of the customers to choose a certain product.

Economies of scale can be achieved through five basics which are, product development, purchasing, production, demand management and order fulfillment.

Continue reading Economies of Scale Concept →

Management - Human Resources

E-business Advancing information strategy to Internet time

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downloadAt the beginning of the 21st century a lot of the traditional trading and business concepts changed. it is not necessary to have a store or outlet to sell your product, it is so simple nowadays to order any product from any country you like, it will be delivered to you in a very short time .There are so many examples for companies who do not have any retailing outlets, they depend on their websites through what it called E-Commerce or E-Business, to sell their products. By this way they can decrease their operating cost through decreasing the fixed assets costs which needs very high capital investment.

The wide spread of the internet worldwide created this idea which became a very big innovation all over the world, but E-commerce is facing some problems which is limiting its effectiveness especially in under developed countries.

The internet made the world a virtual community where all people interacts with each other discussing so many subjects, like sports, friendship…

Virtual communities are social aggregations that emerge from the Net when enough people carry on those public discussions long enough, with sufficient human feeling, to form webs of personal relationships in cyberspace. This virtual community lead to something called virtual society. Virtual society is the place in which people abandon real society Relations and community participation in favor of a life in cyberspace. yet in practice people’s real and virtual lives are likely to be entwined in various ways for example by pursuing real interests through virtual contacts, meeting people in a social context who were initially encountered on-line, or through creating representations of one’s community in the virtual world. It is a world wide technological facility for trade. The use of Information to interact and communicate in a globalized high tech Economy. The term “digital divide” describes the fact that the world can be divided into people who do and people who don’t have access to and the capability to use modern information technology such as the Telephone, television, or the internet.EC is an umbrella term covering all electronic Business technologies. A subset of EC, e-commerce is often thought to mean only customers buying goods and services on the Internet, or Customers-to-Business However, the greatest potential savings are in the Business-to- Business area of e-commerce, as businesses exchange documents, goods, and services electronically in ways that have been unavailable until the recent explosive growth of Internet usage and functionality.

Knowledge management involves the identification and analysis of available and required knowledge assets and knowledge asset related processes, and the subsequent planning and control of actions to develop both the assets and the processes so as to fulfill organizational objectives. It is the art of creating value from an organization’s intangible assets.

This cycle for the E-Business must be ended by a business strategy and then the suitable way to implement.

E-Business is facing so many difficulties to become popular in the Lebanese market like, the threat from both parties of stolen credit cards, the loss of trust between the two parties (sellers and buyers) is the main obstacle to be widespread in Lebanon. But the major obstacle nowadays in Lebanon in that the percentage of the credit cards users is very low which is the basic element in the transactions. This problem will be resolved because the users of credit cards in Lebanon are increasing year after a year. if we return back to what happened with the employees of the United airlines we can honestly say that this will never happen in Lebanon where employees become the board of directors in any company because the majority of the Lebanese companies are family businesses and employees are treated badly especially nowadays where job opportunities are minimal and the bargaining power is in the hands of the owners.

This article was wrote a long time ago in 2004 where the e-commerce and e-business was bot popular especially in the Middle East Region where the trust was not well established with online transactions and people were afraid about this new shopping methodology.E-Business nowadays changed the shopping style and businesses selling techniques in addition to the marketing and adverting strategies.We have nowadays complete shops online where you can do you shopping freely at home and during your free time.You can do your shopping overnight without being stuck in traffic jams and loss pay unnecessary fuel and parking fees.The majority of banking transactions are done nowadays online,hence banks can reduce their branches and decrease the high investment cost in opening new branches and target few number of clients while they can go online and benefit from the global client base and offer them widespread basket of services that can make their life easier with minimum time and money spent to fulfill their needs.

The world is changing nowadays you may not need in the future to relocate in order to work worldwide,you can do your job from home and do meetings over Skype and you may establish you shop online and avoid travelling abroad to open a new business in other places.People who cannot develop their skills with the modern technology will find themselves searching for a job which will be difficult to find through traditional ways.

Management - Human Resources

How to become a good Manager

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Managers are responsible for the output of the other employees who are reporting to him . Experienced managers who join a new organization start out by letting everyone know that nothing will be changed for the time being and all the current policies and procedures that are currently in effect will remain valid and no changes in personnel equipment procedures are contemplated for the present.

Continue reading How to become a good Manager →

Articles Accounting

Statement of Cash Flow Concept

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8858390_f120This article talks about cash flow and the misunderstanding the difference between cash and profits. Profits can be generated either cash or on account. According to the Generally Accepted Accounting Principles revenues incurred at the moment of selling the products regardless cash or on account so the profit or loss statement shows us the net income of our operations but not cash on hand or in the banks. Accounting is a complete system which consists of four major financial statements which are:

Profit and loss statement
Balance sheet
Cash flow statement
Retained earnings statements
There is a very important issue here, the company that is generating high revenues is not necessary has cash on hand.

Every company must care a lot about its cash on hand, cash management is very important for the life of enterprises because the moment they fail to match cash requirements and obligations they may go bankrupt.

There are many tools that can help the financial managers to care about cash which is through financial ratios and proper financial budgeting. Liquidity ratio, acid test, working capital, quick ratio, aging receivables…all of these ratios can help the company to control its cash so that they can measure the time needed to convert non cash assets into cash money.

There are two types of Cash Flow statements one is called Direct Cash Flow and Indirect Cash Flow..The Indirect Cash flow statement is the wide spread cash flow that all finance people knows about it and put it in their periodical reports which is the Beginning cash plus or minus the movement of all balance sheet account positively or negatively from all activities such as operating activities , investing activities or financing activities but actually the management sometimes needs exactly to know the cash flow regardless of the direct cash flow because it may not be effective in the short term while it is effective on yearly basis.

The direct cash flow help the top management to take fast actions and shows them the exact short term cash position of the company and help them avoid surprise insolvency in the company which may lead to big problems to pay important company liabilities such as governmental obligations like taxes and Social Security in addition to bank dues and salaries.

Shortage in cash can lead to break the relationship with key suppliers who are important to have stable relationship with them in order to have a good bargaining power which can help the company to get the best supplies with the best prices but this need to build a stable relationship with the suppliers to avoid late payments and the loss of the advantage to get the company’s supplies at the best prices available in the market.

The Direct cash flow starts from the available cash and banks position and add to the available current cash the confirmed cash that will be generated from sales in the current month and add to it the collections from bills or postdated checks during the same period in addition to the aging of parables in order to identify the overdue during this period taking into consideration the bank commitments and payroll.

Management - Human Resources

PayScale Payroll Debate

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8858399_f120Companies must attempt to pay their people as fairly as possible. You might think a company should try to pay people as little as possible, but companies who subscribe to that philosophy must be prepared to steadily lose all their good employees to competitors willing to pay people what they’re worth. A company must attempt to pay each employee a fair salary, i.e. one that matches the employee’s skills, the market average and other employees inside the company. In other words, the company itself has a vested interest in keeping salaries fair, and keeping salaries secret makes that nearly impossible. Making salaries public (inside the company of course) has some major advantages:

  1. Salaries will become fairer. The system gets a chance to adjust itself.

  2. It will be easier to retain the best employees because they’re more likely to feel they’re getting a fair salary.

  3. The pressure is on the people with the high salaries to earn their keep. Everybody has to pull their weight. The higher the salary, the larger the weight.

Secrecy is very important in the world of business. Sometimes there is some information which are confidential because if it is known by the company’s competitors they will use it to beat the company in the battle in the market field. Launching new products or introducing new inventions must remain confidential till the last minute to retain the competitive advantage. There is big misunderstanding in the business world regarding payroll systems. Payroll is a big headache for the top management because money is the main factor that employees take care about. Every person in this life work to get paid a fair salary in order to have a comfortable life. The problem is this case regarding salaries is that there is not a clear standardized payroll system. Marketing people are getting paid better than other employees although all of them are working under the same conditions.

This problem can be solved in one single way. He must invite all employees in the company for a meeting and cool down the atmosphere and try to explain the variance in salaries between the employees in a certain way not to solve the problem but to cool it down and promise that the top management will review the whole payroll system in the company and everybody will get his fair salary and all salaries will be posted on a big billboard so that it will be public. They must immediately start to work on a new payroll system and put standards for every single position and follow this procedure with every new recruitment.For example: All Junior accountant must get $700-Senior Accountant $1,000 and if a new junior accountant get recruited he will get $700 in a way the new accountant will get the same salary as the old accountant at the moment of recruitment.

Some of the Lebanese companies can give us a clear example at the problem that this company is facing. You can find an executive secretary getting paid much more than Internal Auditor in the company That is why the management try its best to keep salaries confidential because they know that if this auditor knows the truth he will be upset about this matter.Standardizing salaries in the key to avoid problems and fighting inside any organization and will make people work hard to jump from one position to another because it is the only way to get salary adjustment.

Articles Accounting

Profit and Loss Statement Concept

It is the ultimate, unequivocal answer to important questions: Are you getting the job done? Are you a successful entrepreneur? Each month you have these questions boldly answered as you look at the bottom line. The profit and loss statement shows the financial performance of the company through the fiscal year and either it is a successful business or not. Companies’ owners look at the income statement at the end of the year as a school boy is looking at his report card at the end of the academic year and according to it he will decide on his future. If the school boy find himself a none successful person in the academic life he will try to enhance his performance and if he failed to do so he will try to change his major or lately to leave the school.

Businesses owners do the same as the school boy, they look at their financial performance at the end of every fiscal year and depending on the results they will decide to continue in the business, divest, invest or harvest the business. The school boy will be asked by his family about his results and upon receiving his report card he will feel threat and the company owner feels the same because his family will ask him the same question.

The Profit and Loss Statement is a financial concept that help owners of a certain company whether their companies are making profits or are incurring losses.The Profit and Loss is simply the difference between the revenues generated from the sales and the total expenses incurred by the company within the same period.Auditors always insist to allocate expenses to the relevant accounting period in order to show the owners the correct figure.Some Finance managers tends to book some expenses on Provisions accounts in order to hide losses and transfer it to future periods so the auditors usually ask for clear supporting documents for any provisions booked in the Ledger in order to tackle such misleading information for the owners of the company.

The Profit and loss statement is divided into the following main categories and under every category you can put as much details as you want.

  • Revenues (Sales Revenues , Service revenue,extraordinary revenues….)
  • Cost of Sales (This item can be calculated through the following golden formula Ending Inventory=Beginning Inventory + Purchases – COS) in other words the Cost of Sales is the purchases of the period plus the change in inventory balance of the period).
  • General and Administration Expenses like Salaries, rent fees,bonuses,travel expense
  • Financing expenses like bank charges,bank interest and currency difference of exchange
  • Taxes and Municipality fees

Income statements for Groups are somehow different in presentation from small companies due to the need for consolidated or combined financial statements.Profit and Loss statement nowadays are used for analytical purposes and for decision making for the management so the management is requesting Finance people to prepare comparative Profit and Loss showing not only the period results but last period figures , last year figures and budget figures.The management also request variance analysis for the variances in the comparative figures and provide explanations for these variances between actual figures of the current period and the budget figures of the same period in addition to the variances between current period figures compared to last year figures of the same period if exist.

Financial Analysts look first at the profit and loss statement as a first step in their valuation process of the performance of any company.There are basic figures that they should look at in order to base their opinion about the company performance.First of all the Total revenues figure show the total turnover of the company which somehow give the analyst an idea about the volume of the company but it should be linked also to the unit sold (some companies are dealing with Fast Moving Consumer Goods) in order to know the value of the unit sold , the second indicator to look at is the Cost of Goods Sold and hence the Gross profit which is also very important and do the benchmark to the industry gross profit.For example,if you are analyzing an automotive company the gross profit should be relatively 20% which is the logical one in this industry so this company should not show a gross profit of 35% or 5% because it is not logical from our experience in this industry.The conclusion from this practice that the type of industry of such company should help the analyst in his evaluation process.

The administrative expenses also should be analyzed in the valuation process because these expenses should not be overweight compared to the company turnover otherwise it will affect the bottom line in the profit and loss statement and may lead to losses which are hard to be recovered which is either through increase the turnover or minimizing unnecessary administrative expenses.The third part to look at is the financing part in the profit and loss statement because it help the analyst to know if the company is financing its operations through the cash generated from its operations or through bank borrowings.

Modern Profit and lost statement also are requested from Finance people by Cost Center i.e by department for budget control purpose.They may ask for profit and loss statements breakdown by activity especially if the company has several profit centers or selling different brands and the management want to know each branch profitability or losses so the management can take corrective actions or take decision to stop a certain product line.

Economics

The Great Depression 1929

The real causes of The Great Depression 1929

There are so many reasons which caused the great depression in 1929, which began in the United States of America and expanded all over the world. The great depression was one of the major causes of the war world two. Those reasons can be summarized are some points as follows:

False Prosperity:

The over dependence on mass production caused to a big gap between supply and demand in the American market where supply became much higher than demand which lead to the decrease in commodities prices and all companies tried to decrease their production because there were not be able to sell it. Those companies were forced to decrease their labors in order to decrease their costs. Those actions lead to the increase in the unemployment rate in the United States of America. Researches concluded that 5% of the Americans have 33% of the American income which was another gap in the states economy, inspite of that real wages increased only by 11%.

Another cause for the great depression was the Stock Market Crash where a dramatic decrease in the stocks prices which is due to the economic factors.

Banking Crisis, where so many depositors withdrawn their funds from banks which is called deflation, 9000 banks fail in 1930, 1932 waves and Austria’s bank failed May 1931

Unemployment rate:

This rate increased severely due to increase in supply over demand and the companies are not able to sell what they produce so many leading companies was forced to close and unemployment rate rose to 25 to 35 % of total labor force and sometimes much more in some states. The farmers’ income decreased 60 percent and one third of lands were lost.

Trade Collapse:

The international business decreased due to the imports and exports policies some countries put on imported goods which lead to the decrease in the United States of America exports and lead to a big problem in sell what they had in their inventories. Weimar Republic unable to pay reparations or U.S. banks loans and U.S. had been creditor with $638m annual surplus.

Another reason for the great depression was the Americans’ wrong speculations where they were very optimistic about the economic situation of the U.S.A but that was a deadly mistake. Those bad speculations were:

  • Fed loaned at 3.5%, gold inflow 1927, Great Bull Market 1928
  • broker loans on call rose from $3.5b in 1927 to $8.5b in 1929
  • Goldman Sachs investment trusts, 50% margin trading at 5% interest
  • only 1.5m of 120m population were investors

Speculation in the 1920s caused many people to by stocks with loaned money and they used these stocks as collateral for buying more stocks. Broker’s loans went from under $5 million in mid 1928 to $850 million in September of 1929. The stock market boom was very unsteady, because it was based on borrowed money and false optimism. When investors lost confidence, the stock market collapsed, taking them along with it. Short signed government economic policies were one of the factors that led to the Great Depression. Politicians believed that business was the key business of America. Thus, the government took no action against unwise investing. Congress passed high tariffs that protected American industries but hurt farmers and international trade. The economy was not stable. National wealth was not spread evenly. Instead, most money was in the hands of a few families who saved or invested rather than spent their money on American goods. Thus, supply was greater than demand. Some people profited, but others did not. Prices went up and Americans could not afford anything. Farmers and workers did not profit. Unevenness of prosperity made recovery difficult. The best example for that what happened in Brazil where the farmers were forced to use their coffee beans as fuel for trains instead of selling it because they were not able to sell it at acceptable prices?
The great incentives that was given for the investors at that time were so bad because they encouraged the investors to buy more and more stocks without any collaterals, some of those incentives were decreasing the interest rates which is considered as a positive incentive for buyers to buy more and more stocks because the decrease in interest rates will lead to a big boom in the stocks prices. That’s why a lot of those investors was investing money in a virtual secured market where that was only an illusion.

The Great Depression was caused by problems in the U.S. economy, and that these problems were beyond U.S.A control. He also believed that the key to recovery was confidence in the economy. Factories and businesses tried to maintain confidence, and even as they shut down, Roosevelt believed that keeping high and steady wages for workers would bring recovery. He called together many business leaders and got their promise on keeping workers wages reasonable and steady. They held their part of the agreement for a few months, but they soon started to drop wages. The government, in an effort to create more jobs, built new public buildings, roads, parks, and dams, he tried through this way to create new job vacancies for the American to work which will help the business cycle and refresh it. A Presidents Emergency Committee on Employment advised local relief programs. The American president created a new tariff system to protect domestic industries from foreign competitors. However, these tariffs backfired European nations countered the tariffs by increasing their tariffs on American goods. In 1932, he set up the Reconstruction Finance Corporation (RFC), which gave government credit to banks so that they could extend loans to clients. Many people felt that this measure did more to bring prosperity to the bankers rather than to the ordinary citizens.

When President Roosevelt put the new deal he created program to give relief, create jobs, and stimulate economic recovery for the U.S. These programs were called “alphabet soup” as well as the “New Deal.” the goals of the new deal were:

  • Give people confidence in the banking sector in the country through shutting down all of the banks in the country and all the banking activities were controlled by the U.S government so the people will not be afraid of losing all their savings through banks failure and bankruptcies. after reopening the governmental banks deposits exceeded withdrawals which was a very important indicator about the effectiveness of that system where the major problem which lead to the banking crisis were the loss of confidence of the deposits in banks.
  • Creating new job vacancies through building new bridges and dams in the country, in order to refreshing the business cycle.
  • Increase self esteem for the people through creating something called Civilian Conservation Corps. The CCC taught the men and women of America how to live independently, thus, increasing their self esteem.
  • Ending the sale of tribal lands and restored ownership of unallocated lands to Native American groups.
  • Creating something called as Securities and Exchange Commission (SEC).The SEC regulated the stock market. Congress also gave the Federal Reserve Board the power to regulate the purchase of stock on margin.
  • Protecting farmers and gave them confidence in the American economy through creating what is called the Farm Security Administration (FSA) .The FSA loaned more than $1 billion to farmers and set up camps for migrant workers.
  • National Labor Relations Act (Wagner Act). It legalized practices allowed only unevenly in the past, such as closed shops in which only union members can work and collective bargain. The act also set up the National Labor Relations Board (NLRB) to enforce its provisions.
  • Fair Labor Standards Act of 1938, this banned child labor and set a minimum wage.
  • Social Security Act, This act established a system that provided old-age pensions for workers, survivors benefits for victims of industrial accidents, unemployment insurance, and aid for defendant mothers and children, the blind and physically disabled.

This new deal was well realized by the Americans because it was the only way out of that big disaster which was horrible for the Americans where a lot of them were unable to find work, homeless and they can find nothing to eat. some of the new deal’s tools was not successful because there were some gaps in the program or the big companies in the united states of America did not helped the president Roosevelt in his program through fixing the wages rates.

John M.Keynes played a vital role during the great depression and gave solution for that disaster. His seminal book, The General Theory of Employment, Interest and Money was first published in 1936. In this book Keynes put forward a theory based upon the notion of aggregate demand to explain variations in the overall level of economic activity, such as were observed in the Great Depression. The book advocated activist economic policy by government to stimulate demand in times of unemployment, for example by spending on public works. The book is often viewed as the foundation of modern macroeconomics.

The main cause for depression was that the demand for commodities is lower than supply and factories were forced to fire their employees because their products are dead in inventories and nobody is willing to buy thus unemployment rate increased and demand decreased severely. This is what is happening in Lebanon, where there are a large number of sellers and few buyers are willing to buy because simply they do not have money to do so. unemployment rate is very high which is officially 18% and officially is much higher, the average salaries in the country in very low and few university graduates are able to find a suitable work for them so they are forced to work at any salary because simply they have to work in order to continue their life.

From our point of view, we think that we are not only fear from depression to occur in Lebanon but to the bankruptcy of the Lebanese government because our government is not giving solution for the economic disaster in Lebanon but giving morphine to the Lebanese economy in order to escape from the situation but this is nonsense.

The only way to prevent a great depression in the country in labor, labor, labor because labor has the potential to destroy and build any economy, it is the power of every economy. Lebanon is facing a very high unemployment rate for the Lebanese but offering thousands of working vacancies for the foreigners who are working freely and sending their salaries to their countries without even spending 10 % of their salary on the Lebanese territories. In our opinion, the Lebanese government must issue a certain decree that make it so difficult for the foreigners to work here and let the Lebanese people do it themselves and by this way the unemployment rate will decrease in a very short time and the Lebanese economy will reboot but this time in a correct way.