Dealing with Recession

 From Ludwig von Mises Institute

 By Clifford F. Thies            Posted on 1/31/2008

An old joke is that economists have called 19 of the last 16 recessions. Our signal of a recession is three months running of decline in the index of leading indicators. We have not yet had a recession without first having the signal. But, we have occasionally had the signal without the subsequent recession. Well, on January 18th, the Conference Board released its economic indicators and, with this release, we got the signal of the now long-awaited recession. What does it mean?

First, it does not mean we will have a recession. It means we will probably have a recession. We might wind up with a mere slowing down of the economy and avoid an actual recession.

Second, it does not mean we will have a deep or long recession. How short or long, and how shallow or deep is the recession, if we have one, cannot be forecast. Your guess would be as good as mine.

Third, and this is the important point, we economists can now stop trying to explain to people that we actually are in a well-functioning economy, and can start to commiserate with them about how bad things are. If there’s one thing hypochondriacs don’t want to hear, it’s that their many serious illnesses are all in their heads.

Before, we would respond to complaints about the global economy taking away jobs by saying a 4 percent unemployment rate means we have roughly full employment. Now, we can say, while 5 or 6 percent unemployment is a low level of unemployment by historical standards, its recent uptick is indicative of a slowing down of an economy and possibly of the start of a recession.

Hopefully, the listener will be assuaged by the sympathetic response, and not ask if there is a connection between the global economy and the recession, because we would have to explain that, because of the recent surge in exports, the recessionary pressure that has developed has been ameliorated by the global economy.

Instead of responding to complaints about the high rate of inflation by saying a 2 percent rate of inflation is pretty close to price stability, we can now say that a rate of inflation of 3 or 4 percent, which has been accelerating recently, is indeed a cause for concern.

For all the talk by the Federal Reserve about “inflation targeting,” we now see that responding to short-run problems is paramount for the Fed. Holding the line on inflation is something the Fed does when it is convenient. Resorting to inflating the money supply when times are tough is predictable, as is a continuing loss of purchasing power of the US dollar. The only uncertainty is how fast the dollar will lose purchasing power. Will it be at a creeping rate, or at a galloping rate, or at a hyperinflationary rate?

You might think that we learned our lesson about inflation during the 1970s, when we moved first from a creeping to a galloping rate, and then risked a further move to hyperinflation. The double-dip recession we then went through starting in 1979 fell in the second tier of economic downturns (below only the Great Depression). There is currently no indication that a severe downturn is on the horizon. But, if we work hard enough at it, with fiscal and monetary policy pumping up the economy and delaying and exacerbating the inevitable, we can make such a severe recession possible in the future.

Full Article:  http://www.mises.org/story/2853

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  1. bonds7

    A severe recession is upon the United States.

    We as citizens need to wake up and realize our financial stability is on the brink of cracking. Check out http://www.recession2008.wordpress.com and watch some of the smartest people in the world debate this issue and talk about the facts hidden from us.

  2. Could it be that all those trick-or-treaters wearing sheets aren’t going as ghosts but as mattresses?GeorgeCarlinGeorge Carlin

  3. It is better to remain silent and be thought a fool than to open your mouth and remove all doubt.




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