Thursday, April 17, 2008

The "R" Word

The word is being tossed around like a hot and rotten potato. Are we in a recession? Many notables in the economic world including ex-fed chair Al Greenspan say "yes", current chair Ben Bernanke calls it a "slow-down" but can't bring himself to say the "R" word, and others in denial/damage control mode are saying, "we can't tell yet". Why is it so hard to get a consensus here? To take a phrase from the intellectual (but fictional) great Forrest Gump, "a recession is like a box of chocolates..." you don't know what you've got until you've bitten into one. So anyone who has navigated a box of Russell Stovers without a map can appreciate the difficulty in knowing exactly when to say, "yes, ladies and gentlemen, we are in a recession."

By definition, a recession is two consecutive quarters of contractionary, or negative, GDP (gross domestic product). To date, we haven't even had one quarter of negative GDP as 4th quarter of 2007 came in finalized at 0.6%. With first quarter of 2008 just finished and finalized numbers for it still months away, we won't know if we're actually in one until we're more than halfway there. It's kind of a raw deal, if you ask me. It's like having a gas gage in your car that tells you the tank is getting low 20 minutes after you've run out of gas.

So hang on to your hats, people, (and your IRA contributions), because recession or not, we're in for a crazy ride. And if anyone has any suggestions on where to park your money in a bear market with miniscule interest rates besides a mattress in the basement, please, share them here.


Ambie said...

"Recession is when your neighbor loses their house, depression is when you lose yours"

Ronald Reagan

Tim said...

With such concrete measures in place for what constitutes a recession, it's puzzling why there's so much debate over whether we're in one. And in a way, the argument is useless. Consumer confidence and the financial markets have already factored in the news. If Bernanke were to declare today that we are in a recession, I doubt anything in the financial markets would change.

ray said...

So what do you think would happen if 1st quarter GDP came in positive? (The one thing you can count on from Americans is consumption. While other indicators have been weak, retail sales has hung in there.) Would the markets rebound then if recession is already priced in? Do you think the fed will cut rates on the 30th?