In Search of That Recession…
“I think the “muddle through” scenario is still on the table heading into 2012. That means we’re likely to see growth, but below trend. The economic environment will continue to feel like a recession even though we’re not technically in one. That’s entirely due to the fact that we remain in a recession! It just happens to be a rare phenomenon known as a balance sheet recession. And as long as the de-leveraging is offset by government spending which allows the private sector to repair balance sheets without crashing aggregate demand, we should continue slowly growing.”
That’s been largely correct (and in the face of severe recession risks), but I’d be lying if I said I don’t still heed the calls of firms like the ECRI, who has been calling for recession for quite a while now. Although they’ve been wrong thus far their track record remains impressive. The following is a recent update from the ECRI’s website on their recession call from a year ago. They’re sticking to their guns (translated via Google):
“How times change but, if the U.S. economy was the dynamic engine of the world economy once, it has now transformed into an old rusty tractor. Although the U.S. economy is still growing, with 2.0% in the first quarter and the second quarter at 1.5%, but some observers fear that the U.S. could in the second half in a mild recession glide.
A question of criteria
Skeptical analysts fear, however, the U.S. economy was already in a recession including, for example, experts from the independent, non-profit Economic Cycle Research Institute (ECRI). They warned at the end of last year of a recession in the U.S., which should begin in the first quarter or at the latest in the summer of 2012. The Institute is a member of a minority with his opinion, but recently it defiantly repeated his warning. Lakshman Achuthan, chief operating officer of ECRI said in an interview with Bloomberg, the U.S. is already in recession. However, it is very rare, Achuthan said that they knew full well that the recession had already begun. It often need a specific major event as a trigger, as in the past, for example, the bankruptcy of U.S. investment bank Lehman Brothers, or how the 11 September 2001.”
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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11 Comments
With 50 million people on food stamps all the other numbers, graphs and statistics tell nothing really important. A large section of the population is now poor. The percentage of the new poors is growing fast in most of the western countries. Where is growth ? Where is progress ?
lets wait and see. business spending is flashing red: http://blogs.wsj.com/economics/2012/08/24/underlying-weakness-in-durable-goods-report/
Although I do not live in the US,(I live in Tokyo where it really does feel like a recession all the time), I am amazed that people continue to call a recession. If you use the standard definition then there is a need for 2 consecutive quarters of negative growth.
So if they are correct, then the USA is going into a fast and serious decline, but recent trend growth has been positive – it is not spectacular by any means but the numbers seem steady. So their recession call could only be correct (and confirmed) as early as the start of 2013, if the US is indeed currently in recession.
With all due respect calling a recession and having 12 months pass and still no recession means that they are naturally increasing their chances of being correct. The more time that passes then there is a greater probability of a recession.
If Obama is a low-spending President and the US is not in recession, then it could be expected that growth would increase if the government increases their spending. Yes, they may decrease it, but it would be a brave government that did this is the face of persistent high unemployment.
Well, check the definition of recession. ECRI seem like technically correct on the definition, or will be proven soon with high probability – definition is not 2 Quarters of negative GDP. But people will know that GDP was negative in 2013. It does not mean the timing of their call was wrong.
So far, Cullen’s reasoning and analysis is proven correct. Maybe this proper understanding of the monetary machine allows for a better big picture. Despite the muddle through senario Cullen has supported, there has been a more cautious or negative “mood” implied by many of his posts despite what I would view as his natural positive inclinations. This balance sheet recession may be distorting traditional imputs to the analysis of many others causing them to miss the bigger picture. With the uncertainty of fiscal stimulus, the big lifting is left to monetary policies that have no history of proven ability.
Hussman wonders if monetary policy will cease to cause effect and Cullen has shown readers that QE is an asset swap and not money printing so should not have stimulitive effects to any degree .
A market being pushed along by CB actions is not a normal market and therefore the macro view becomes the biggest determanent of its direction.
The long and short of it is just a thanks to Cullen for his correct view and for his generosity in maintaining this blog with both his time ,knowledge, and money on the line experience.
+1. Agreed. “The long and short of it is just a thanks to Cullen for his correct view and for his generosity in maintaining this blog with both his time ,knowledge, and money on the line experience.
The determination of whether or not we are technically in a recession or not is simply based on the manipulated figures of a dishonest government.
The perception of the majority of people though, is that we are definatly not in good times.
Economic disparity has never been higher and the common working people are getting the short end of the stick.
Corporations are using their new found wealth garnered from the exploits of the world economy to strip citizens of their rights, political power, and prosperity.
Such are the benefits of the new global economy.
Where we once had free markets and free citizens, we now have only masters and peasants.
The trigger ? Greece declaring bankruptcy, any one ?
Attack to Iran. It’s a matter of when and not if. It will send the world very close to 1939. For the fascist elites in the US and China it is a great opportunity. Nothing is better than a war to destroy the current stock of debt through inflation and run new massive deficits to produce new weapons and pay for new soldiers. Ready for the big trumpets of the propaganda ? The enemy is here and bla bla bla.
This is all so silly. Let’s say our economy is at 30 stories before the fall. It then falls 20 stories but rebounds to eleven then twelve then thirteen. Does anyone really postulate that we aren’t still in a real bad way? Well let me clue you in, it’s real bad out there. Good god, technical recession be damned.
Few will see this here but this is reality squared:
http://www.nakedcapitalism.com/2012/09/some-basics-on-the-economy.html