Recession: We are already there

I've been listening to all the talking heads on CNBC, blathering on and on, saying things like: "We're not officially forecasting a recession, but we see a slowdown." Blah, Blah, Blah.

What they're really saying is: "We won't have an officially NBER defined, two consecutive quarters of negative GDP growth. We see that the economy will slow down so that we will still show growth, but that it will be less than the "trend line" of approximately 3% per year.

What they really mean is that they are too chicken to out on a limb and say there will be a recession, so they take the safe approach – there will be a “slowdown”. Go and measure that one Bernanke.

So what's the bottom line?

House prices are falling in every part of the country. People are not taking out any more equity loans (as they have less equity in their homes), primarily because they are being turned down by banks. As a result, people will spend less. Since economic growth depends on consumers spending, we will have a recession. Moreover, as the media have been talking up this result ad museum, it seems pretty clear that we will soon have a self-fulfilling prophesy - the economy will slow down because people are spending less because they hear that everyone else is spending less.
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So now we have a sport of the talking heads forecasting a forecast. John Maynard Keynes would be proud.

As long as people continue to be employed, the depth of this recession will be minor. But make no mistake, we will have a recession. I doubt that we will have negative growth as the cheap US dollar helps exports, and US multinationals continue to do a nice job selling products overseas. But we should start calling it a recession. It also seems pretty clear that the length of this recession will be a based on how long it takes for the financial sector to work through the sub-prime slime mortgage crisis, and how long it will be before they can once again begin lending to people who will spend the money.

So how did we get into this mess? Let's say thanks to Alan (the fireman) Greenspan, and more recently, to the confused execution of Ben Bernanke and the Fed.

At this point, I think it's pretty clear that the issue is not whether we are going into a recession. The issue is how deep it will be.