Friday, December 5, 2008

It’s a Recession, Not a Depression

Did you have ANY doubts that we have been in a recession?  I sure didn’t.  Yesterday, the National Bureau of Economic Research here in the United States  confirmed it, “Yes, it is officially a recession.”

What may come as a surprise to you, though, is that we have been in a recession here in the United States for a year already, since December 2007.  At least — that’s according to the definition given by the aforesaid authorities.

But it’s a strange thing about recessions.  Just as it takes a while to determine you’re in one, there’s also a lag on the back end.   We’ll likely be coming out of the recession before anybody confirms that.  

That’s why, in a strange way, it’s a good thing that we have been in this recession for a year now.  Recessions by nature are temporary.  Historically the “official recession” doesn’t last long — not more than a year and a half.

Here’s a chart from an article by Jon Hilsenrath of the Wall Street Journal, showing recession time frames:

 

No one knows for sure how long this recession will last.  Federal Reserve Chairman Bernanke gave a speech yesterday in which he said that weakness in the economy would likely continue for a while.  His remarks struck me as realistic:  not overly optimistic nor pessimistic.  And here’s the important news:  he scoffed at references to the Great Depression of the 1930s, saying “there’s no comparison.”

Chances are the only way we will really know we are coming out of recession and back into growth is by looking backwards, after we have already started the recovery.  And just like it’s darkest before the dawn, we may be ready to come out of this situation precisely when things appear bleakest.  We just may not know it until later, after we look backwards.

Hang in there!


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