The money book: optimism sheds light on tough economy. (An Advertising Supplement).

It is a known fact that the economy was headed for trouble independent of 9/11. There has been and continues to be a real estate "bubble" created by easing credit that will burst and thereby reduce the existing level of consumer demand. This false sense of security extends to the corporate world that over-borrowed and over-invested. It was based on the faulty thinking that the economy would grow forever and that the technology age and global economy would eliminate the business cycle. Rather, these forces are likely to synchronize economic cycles.

Today, the reasons for increased pessimism are multi-fold, and the recession is certain to continue for many years. One reason is because this recession is different from previous post war cycles. In the recession of the 90s, the strength of Japan and the ECs were drivers that helped America. Moreover, stock prices have experienced their biggest decline since the Great Depression, and it's not over. This reduction is further compounded because a larger than ever percentage of the population own stock directly and indirectly. Some seven trillion dollars have been eliminated based on the S&P 500 index since March 2000. Share prices still seem high. In 1982, at the bottom of the bear market, the S&P traded at eight times earnings, now it is 20. Today, consumers continue to borrow based on low interest rates and the increasing value of homes. However, debt cannot rise faster than income for long.

The economy actually needs a period of below-trend growth to absorb these excesses. The combination of a slow economy and a low level of inflation could lead to deflation and run the risk of a "liquidity trap" as interest rates become too low. A cheaper dollar would increase exports and raise imports, which will help offset the possibility of deflation. However, it comes at a price. While it would increase exports as a cushion against domestic spending, it would have a deflationary impact on Japan and the EC. For survival, it's necessary to "go through" and not cushion the pain. Economic cycles are here to stay. Unemployment will go up, and tax revenues will fall. It is simply not a time to balance budgets, and EC deficit limits could hinder recovery in that part of the world.

In spring 2002, society had not begun to fully experience corporate fraud, incompetence and greed that are in full bloom today. The accuracy of corporate financial statements, a source of pride in our recent past, is now brought into serious question. At the same time, consumer demand has been the major driver of our economy. Yet, today consumers face:

* Rising personal debt

* Terrorism

* Decline in the value of pension plans and wealth

* Lack of confidence in corporate America

* Surge in bankruptcies

* Excessive corporate debt

* The bursting of the IT bubble

* War in Iraq.

All is not doom and gloom, however. There is some optimism on Wall Street and some increased government spending. In addition, here are some key economic factors that represent some brightness in the future:

* Over the past 50 years, inventory investment accounted for more than half the fall in GDP during recessions. "Just in time" and other sophisticated systems have resulted in 2/3 as much inventory related to sales as in the 1970s.

* Public spending accounts for over one-third of GDP in developed economies, so it can be a useful tool in recessions.

* A banking crisis now can be averted because of such reforms as deposit insurance and bank regulation.

* The tax cut, which made little sense when the economy was robust, is now timely.

* We entered the recession without an oversupply of housing.

* Banks entered the recession with strong balance sheets.

* A large portion of bank lending during the boom was bundled into securities, shifting the risk.

* The business community demonstrates flexibility in responding to the economic crisis.

Since most companies need to plan for a long period of economic slowdown, executives and owners can benefit by taking these important steps:

Make a major paradigm shift from growth to survival. Do not depend on revenue increases to bail out the business. Instead, assume revenue will decrease by as much as 30 percent, and plan to survive at that level. No one will criticize you if revenues fall by a lesser amount.

Take out all the "fat", but leave the muscle. According to over a decade of research, we have discovered there is a science to "Breakthrough Savings", where costs can be cut by 15 to 25 percent. The biggest opposition to accomplishing corporate excess comes from the executives below the CEO level who often battle and collude for turf survival.

Cash is king, and so is the balance sheet. The business cannot run out of cash or it will fail. The best line of defense is a strong balance sheet. There are many creative techniques that can help insure balance sheet strength. Lack of real understanding of the balance sheet is the "Achilles heel" of many owners and CEOs.

Keep your long-term vision. At the end of this storm, there will be a golden sky. Use this time to set the foundation for future growth and expansion.

These suggestions will help executives cope with the economic downturn -- an event many of them have never faced before. Accordingly, those who learn how to use the appropriate tools will survive and prosper when the economy recovers.

Mr. Kibel is co-founder of Kibel Green Inc (KGI), specializing in saving distressed companies and creating value for companies at crossroads in their lifecycles.