Officially in a Recession

The National Burueau of Economic Research has announced that the US has been in recession since December 2007. The average length of a recession in United States after World War II has been 10.5 months. So this recession has already been longer than average recessions.

It won’t be surprising if this recession is declared a deep recession, but that will happen much after the recovery has begun. What amazes me is that it took more than the length of an average recession to declare that there is one going on!

The official definition of a recession is that the GDP contracts for two consecutive quarters. The US GDP actually grew in the first two quarters of this year. Even, then, the National Bureau of Economic Research decided to call it a recession based on other indicators like Payroll data.

It also said that the economy received an artificial boost because of the stimulus checks that were sent to taxpayers at the beginning of the year. If that was an artificial boost and its impact, only temporary, then how are the current bailout packages and stimulus plans any different?

The US Economy is the biggest economy in the world and about 71% of it is domestic consumption. So, the government can’t allow that consumption to go down and let the economy collapse. On the other hand, the only thing that the government can do is print money.

It seems that they are enjoying this and printing, like, there were no tomorrow. I don’t blame them, if I could print money, I would too. But by printing such a lot of currency, the dollar is surely getting devalued. That the dollar has gained steadily over other currencies in the last few months has been a result of deleveraging and people playing it safe, and moving out of other asset classes.

This can’t go on for long though, once the financial markets stabilize and investors return to other assets, the dollar will lose its value much faster than it appreciated. The fall in asset prices is always much faster than the rise in them.

Maybe at that time, someone at the top will realize – you can’t spend your way out of all troubles.