IT was a humid night in downtown New Orleans, USA. Mary Plumber lay on her Queen-sized bed in a sexy see-through nightgown.

Her husband, Joe Plumber, came home from work, dropped his box of tools in the corner and said, 'Ah, honey, not tonight. It's too hot and humid.'

Mary moaned, 'Turn on the air conditioner. Just for five minutes baby. That's all we need. It's a good investment in our future family. And it could be fun.'

Joe thought it over and shook his head: 'No, sweetie-pie. It's not just the heat. I'm worried about the recession too. Let's get some sleep so we can wake up tomorrow and start worrying refreshed.'

The scene is typical. It is being repeated from New Orleans to New Delhi, from Shanghai to Singapore, from Bedok to Bishan.

What to do? Here are three reasons the world is facing a recession, and three suggestions for fixing it.

Higher home prices

The big drop in US home prices is what got us into this mess. Using tax incentives to push them up again will fix it. Banks could recover their bad debts and homeowners would feel wealthier.

Since the crisis began, lower home and stock prices have caused roughly $25 trillion of wealth to evaporate.

That is just for the US. It is about double that worldwide.

The problem is most policymakers think home prices were an inflated bubble that deserved to burst. They view lower prices as desirable. It would be hard to convince US lawmakers to pump them up again with tax cuts.

More risky bank loans

In the good old bubble days of three years ago, hedge funds operated at 20 times leverage. Private equity funds did too. It means for every $1 invested, the fund borrowed $20.

Without the leverage, a 1 per cent price increase means a 1 per cent return on investment. Too boring!

With leverage, a 1 per cent increase gives a 20 per cent return. That's action!

Of course, it is risky because it can also work in reverse.

Consumers got even higher leverage with 100 per cent home loans. Many became millionaires by buying and re-selling homes with no money down. When the bubble burst, they became bankrupt. US banks are still absorbing the losses.

The buzz word of the day is 'de-leverage'.

It means everyone borrows less. But when less money gets borrowed, less is spent. And when less is spent, the economic engine turns more slowly. Before you know it, you've got a recession.

Returning to the old days of easy bank loans would put more money in people's pockets. With more to spend, they could revive the world's economies.

Unfortunately, banks have just written off the most bad debts in history. They are in no mood to go down that road again. Now, banks routinely turn away loan requests with even a whiff of risk.

Everyone seems to think de-leveraging is a good idea. The downside is it reduces borrowing, spending and makes recession more likely.

Fear produces fear

Governments have lowered interest rates and made money available for banks to loan. That's good.

Now, banks must lend it. They don't because of their new-found aversion to risk.

A second problem is almost as serious: Businesses don't really want to borrow.

One factory-owner told me, 'Why should I borrow money to expand? With this recession, I can't even sell what I make now. My warehouse is full.'

There is a self-fulfilling nature to recessions. Once an economy starts downhill, everyone waits. They don't spend.

Less spending pushes the recession deeper. It makes the preference to wait even stronger. The downhill slope becomes steeper.

On a more positive note... well, there is none at the moment.

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