Moves by Congress and the Federal Reserve over the next few weeks could very well determine whether the economy slides into a full-blown recession and the markets continue to be pummeled by bad news, said Mr. Davis of Vanguard.
“There are a lot of wild cards out there right now, including rate cuts by the Federal Reserve and what a tax stimulus package could look like,” Mr. Davis said. “I do not think it is too late to prevent a recession, but we are at a critical juncture.”
[blockquote]“I do not think it is too late to prevent a recession, but we are at a critical juncture.†[/blockquote]
I disagree. I think the evidence strongly indicates we are already in a recession. And I will predict that when the dust settles and economic historians get to look at the real numbers they will show that the US slipped into a recession sometime in the last quarter of 2007.
The Roberts Recession Index definitely has slipped over the past four months-
it is definitely easier to find seats on airlines in January than it was in September during business hours.
But I think defining this recession, if that is what this is, will be difficult, due to it being a credit induced phenomena. Moreover, interest rates never really peaked, they just inverted ST vs LT. Finally, oil price induced inflation seems to be getting absorbed by the general economy, unlike the 70-80’s. So we might see a minor repeat of the Japanese deflation or the US deflation of the mid 30’s, with the emphasis on ‘minor’ as those two episodes were full scale depressions. But their fixes took a long time as entire credit systems had to revise their asset valuations. In comparison, inventory recessions tend to be six month affairs.
Recall the DJA was under 9000 when GWB took over.
Actually, #3, the DJA was at 10,587.24 on January 22, 2001.
In another sense it will not matter if it is Dow 600 in real money or Dow 14000 in inflated money. Personally I would prefer Dow 6000 in real money, because then you could trust money.
5 getting to your preferred state of monetary value, via deflation, is pretty painful and is usually considered to be politically impossible. Borrowers hate to pay back loans with dollars that are worth more in the future than those they borrow. Lenders hate to get zero or effectively negative rates of return as it looks bad on income statements. Think of Japan in the 1990s.
#6:
Deflation is painful only to those who borrowed before their means. For those on fixed incomes, those who live modestly and have been priced out of the market, deflation is a boon.
The only reason governments tell us that inflation is a good thing and deflation the worst of all evils is because the greatest borrower of all is government.
I think inflation is the worst of the two. Inflation steals from the poor and the thrifty to give to the spendthrift and speculators.
YMMV
Shari
7 agreed on all you said, but note that I said it was a political issue, and therefore not subject to reason or moral suasion.