Recession guru says we're almost there

Recall that in January 2001 the Fed started to cut rates sharply lowering them by 200 basis points in three or so months yet we still had a recession because the effort came too late.

this can't be true. No one was talking recession at all during the 2000 Presidential campaign -- and in October of 2000, Greenspan was signalling that he might raise rates because steady growth was leading to inflationary pressure on oil/energy prices.

Indeed, the closest thing to "recession" talk through all of november was concern that the "uncertainly" of the presidential elections were not good for the markets. There was talk about 'not meeting projected growth targets', but that was about it. "Recession" didn't really enter into the discussion until Bush declared that one was coming shortly after he was appointed by the Supremes -- and Greenspan began his rate cuts almost immediately (we're talking within weeks.)

In fact, it was Bush's announcement that a recession was on its way that was the proximate cause of the recession. (Bush's tax cuts were predicated on huge surpluses that were based on growth projections that wouldn't be met. Overnight, Bush decided that his tax plan was needed to stimulate growth because of the 'coming recession') This happened in the middle of the Christmas sales season -- one that retailers had stocked up for anticipating record sales volume. But the sudden talk of recession made people tighten their belts and cut way back on their Xmas purchases -- and the recession happened.

Many American companies are involved in oversea markets. Therefore, any indicator that points to a global downturn could be the harbinger of a recession, such the Baltic Exchange in London which tracks large ocean freight orders. The Baltic is down 30 percent since the beginning of the year. Since economist use it as a metric for determining the health of the global economy, it seems that we could be headed toward a recession, if one accepts the notion that a global downturn will have a cascading affect on the U.S. economy.

mediasux:

regarding your comment that there was no recession talk during the fall of 2000 check out page 2 of ECRI Sep. 2000.

"Never in this expansion have the leading indicators been so close to calling a recession"

http://www.businesscycle.com/ecri_public/sample_pdfs/USCO092000.pdf

Owen...
Lets look at the whole quote, shall we...

"Never in this expansion have the leading indicators been so close to calling a recession. Luckily, underlying inflationary pressures have already turned down"

in fact, this is what the same publication had to say about 'all the leading indicators"..

"A recession is not yet on the horizon -- in fact, the trajectory of the U.S. Long Leading Index remains consistent with a slowdown. However, the U.S. Diffusion Index...has dropped to levels not seen in this expansion. In that sense the risk of recession has never been so high at any time during this expansion.

No recession was being predicted... instead, a "soft landing" (continued, albeit slower, growth) was predicted.

To Mr Achuthan's point, the amount of internal U.S. policy stimulation is most likely becoming less of an agent of avoidance in terms of monetary policy. However, it seems (largely) global markets still take their lead from the American markets. Maybe because U.S. equity markets account for roughly 50% of all global equity markets?

One day this will not have the same impact, but apparently that day is still far away.

Another point: In all this recession or no recession talk, there will be a transfer of wealth, and in the context of history, does anyone have any estimates of the nominal value of this transfer?

JSR
Zpryme Research & Consulting
http://www.zpryme.com