Business Week Cover Story: Recession Time

How bad will this downturn get? No one can know because we’ve never experienced such a headlong slide in the housing market””and this comes at a time when its current value of $20 trillion accounts for the vast majority of most families’ wealth. Right now most economists expect the U.S. to experience a mild, short recession in 2008. But there is at least a possibility of a steeper decline that the traditional recession remedies””interest-rate cuts here, deficit spending there””won’t be able to handle.

What should be done? For policymakers in Washington””Fed Chairman Ben Bernanke, Treasury Secretary Henry Paulson, and congressional leaders””the sensible course is to insure against the small but scary possibility that things could go very wrong. The potential “insurance policies” are government actions that have a real cost but lessen the risk that a mild recession turns into something worse. The International Monetary Fund endorsed that approach on Mar. 12 as First Deputy Managing Director John Lipsky urged policymakers globally to “think the unthinkable and guard against a downward credit spiral.”

Broadly speaking, policymakers have three options for putting a safety net under the economy. Each has its pros and cons, and the cons become most apparent when the measures are taken to an extreme. That’s why a three-pronged approach that uses each option in moderation may be the best way to go.

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Posted in * Economics, Politics, Economy, Housing/Real Estate Market

2 comments on “Business Week Cover Story: Recession Time

  1. Daniel says:

    There’s a time honored, contrarian rule of thumb that says whenever you see something on the cover of a major business publication, you should place your bet on the opposite side. It will be interesting to see how this turns out, and looking retrospectively, when the economic bottom was reached in this particular turn of the business cycle.

  2. Kendall Harmon says:

    Absoutely right, Daniel in #1, and Business Week covers are one of the very best contrary indicators. We shall see.