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Slide

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Hold on to your seats:

Although it is too soon to tell whether the United States has entered a recession, there is mounting evidence that a recession has in fact begun. Key measures of economic activity stopped growing in December and January or actually began to decline. The collapse of house prices and the crisis in the credit markets continue to depress the real economy.

***

If a recession does occur, it could last longer and be more painful than the past several downturns because of differences in its origin and character. The recessions that began in 1991 and 2001 lasted only eight months from the start of the downturn until the beginning of the recovery. Even the deeper recession of 1981 lasted only 16 months.

But these past recessions were caused by deliberate Federal Reserve policy aimed at reversing a rise in inflation. In those cases, the Fed increased real interest rates until it saw the economic slowdown that it thought would move us back toward price stability. It then reversed course, reducing interest rates and bringing the recession to an end.

In contrast, the real interest rate in 2006 and 2007 stayed at a relatively low level of less than 3%. A key cause of the present slowdown and potential recession was not a tightening of monetary policy but the bursting of the house-price bubble after six years of exceptionally rapid house-price increases. The Fed therefore will not be able to end the recession as it did previous ones by turning off a tight monetary policy.

And:

For the Federal Reserve and its chairman, Ben S. Bernanke, all this could not come at a worse time. With the credit markets in disarray from the collapse of the housing bubble, Mr. Bernanke is cutting rates in a headlong rush to blunt the risks of recession.

But in putting its emphasis above all on reviving growth, America’s central bank, according to some economists and even a few Fed officials, may face a bigger inflation problem down the road.

“They are cutting rates with a bill to be paid later,” said John Ryding, chief United States economist at Bear Stearns. “The question is not, will we get inflation, but how much will it cost to stuff the genie back in the bottle. This has the feel of 1970s stagflation.”

If Democrats were smart, they would begin to brand this the Bush recession, as the Republicans have already shown their cards. In this case, the Democrats would even have truth on their side- this is a Bush recession, and he should get full credit for it.

Reader Interactions

24Comments

  2. 2.

    Snarki, child of Loki

    Bush recession #2.

    The first one (early 2001) got started after Bush & gang started talking down the economy to get some more pressure for passing their tax cuts.

    It’s like a matched set: 2 recessions, 2 stolen elections, 2 lost wars, 2 terrorist attacks on the US (9/11 and anthrax), 2 destroyed major american cities…

    Uh oh, I gave away the Bush plan for 2008. Oh well, no one will belie 84;YR@j4# NO CARRIER

  5. 5.

    Zifnab

    What continues to amaze me over and over again is how the Democrats manage to pass on such ripe opportunities to absolutely skewer the opposition.

    You want to really stick it to the Republicans? This isn’t the Bush Recession or the Republican Recession or even the Conservative Recession.

    Call it the “Tax Cut Recession”.

    Point to the $1.4 Trillion give-away in 2001, and start talking about how all that money has done absolutely nothing for our economy. How personal debts are higher and national debts have doubled. How basic services go unfulfilled because the government can’t afford to pay the bills. How Katrina has devastated our Red State economies. How failure to implement universal medical coverage has put the cost of insurance on the backs of weakening businesses. And how all of these problems can be trailed right back to the $1.4 Trillion in tax cuts.

    Then start the drum roll that will drive the Republicans insane. “Tax Cuts are bad for the economy.”

  8. 8.

    Caidence (fmr. Chris)

    If Democrats were smart, they would begin to brand this the Bush recession, as the Republicans have already shown their cards. In this case, the Democrats would even have truth on their side- this is a Bush recession, and he should get full credit for it.

    “If”, “if”, “if”. If I had a Magical Unity Pony.

    Wait a sec, I DO have a Magical Unity Pony!

    Save us, Magical Unity Pony!

    /This reminds me: Obama needs a theme song.

  9. 9.

    Caidence (fmr. Chris)

    no, it’s the

    OK, I’ve been upset enough this week. I didn’t need to see that.

    Now I’m sitting here trying to remind myself that RedState has the social credit of the grumpy 60 24 year-old at the end of the bar, slapping waitresses’ butts and calling the bartender “boss” “champ”. He’s also on his 9th Tom Collins Red Bull and Vodka

    (edited for RedState being run by ineffectual children)

  10. 10.

    grumpy realist

    Good articles in the FT today on the continuous meltdown of the monolines.

    Yeah, we’re probably going to go through a period of stagflation. (Remember that typical official inflation statistics leave out the costs of a) food and b) oil, so actual effective inflation is higher than what we’ve heard reported as the CPI).

    The Fed is still more worried about deflation than inflation at present, so expect continual rate cuts. Which is akin to doing brain surgery with a meat axe, but hey, let’s ignore the fact that oil and other commodity prices are set by global demand, not US demand only.

  12. 12.

    Jeff

    I, too, have seen similarities between what seems to be developing — slow growth with inflation and increasing unemployment — and the “stagflation of the 70s”.

    One other similarity? A drastic increase in the price of crude oil over a very short period, i.e., 100% over two years.

    Coincidence? You be the judge…

  13. 13.

    Caidence (fmr. Chris)

    I, too, have seen similarities between what seems to be developing—slow growth with inflation and increasing unemployment—and the “stagflation of the 70s”.

    I’m not well-read on the economy tickers…

    but I can vouch for seeing established businesses in core Manhattan have started shutting their doors. In Manhattan. The Land of Ivory Towers.

    /uh oh

  16. 16.

    Jake

    Gee. I can see how there would be some lingering confusion over the state of the economy.

    On the one hand we have everyone from experts in a given area to creatures who live under rocks saying “We’re fucked and it’s going to get worse!” Just as they’ve done a thousand times before.

    On the other we have bAdmin shouting: “No really, everything’s fine and the tarrists win if you say otherwise or even ask about the data we’re using to support our statement!” Just as they’ve done a thousand times before.

    So, just because the experts and creatures under rocks have been right 1,000 times and the bAdmin equally and devestatingly WRONG, doesn’t mean that the lay person can make any sort of informed guess about the state of the economy. Otherwise, the tarrist will win.

    Ha, ha. I kid.

    OF COURSE WE’RE IN A FUCKING RECESSION.

  18. 18.

    curtadams

    This absolutely Bush’s recession. The key element is loans on outrageously overvalued houses that the “owners” couldn’t pay even if they wanted to. Those loans will go bad and sweep away hundreds of billions in bank assets. The financial system is panicking because they know lots of respected entities are going to go belly up.

    Well, back in 2003 Spitzer attempted to investigate the predatory loan practices which were the backbone of the mortgage abuse system that’s put us in this pickle. Predictably, Bush used the OCC to defend the crooks. Spitzer has not forgotten.

    Perhaps we should call it “Bush the crook’s recession”.

  19. 19.

    Caidence (fmr. Chris)

    hahahah, fuck me I got Rick Rolled

    I saw this:

    I’d suggest this one.

    and then this under it:

    It’s electric!

    so I thought you posted The Electric Slide. /facepalm/

    That was a silly attempt at a Rick Roll, but Con Mhac made it work for you.

  20. 20.

    Caidence (fmr. Chris)

    But whenever I’m around Obamabots, the song in this keeps going through my head.

    I don’t think you realize that most of us are mocking this “Obama Cult” meme.

    But I freaking love that.

    “SHUNNN the non believers!”

    “SHUNN”

    “ssshunnnnn”

  22. 22.

    Fwiffo

    Even the commenters at RedState aren’t buying it.

    The explanation is that people understand that the current slow down is the result of the Housing / Credit bubble which isn’t the donks fault. Trying to pin this particular slow down on the dem congress isn’t going to work; having said that, knock yourself out.

    I guess if you could actually point to the specific piece/pieces of legislation passed by congress that caused the downturn then you might have something but then you’d have to account for why the Administration didn’t veto it.

    As much as you might want to try and pin this on democrats it simply wont’ stick. Maybe if the Administration lead by example and proposed a balanced budget instead of the largest deficits in US history that might be helpful.

    I am all for sticking it to Pelosi and her crowd whenever we can, but trying to blame them for “hobbl[ing] a previously growing economy” is going to go nowhere. First, the President always takes the bullet on the economy, whether deservedly or not. Second, what exactly did the dems do to screw up the economy? Nice try, but this won’t fly.

    It’s insulting to think Congressman Feeney figured that bloggers were so stupid to buy this.

    To anyone who has even casually followed the years of utter stupidity in the financial services sector (liar’s loans, anyone?), it will simply be insulting.

    I’d be open to what Rep. Feeney has to say about regulatory burdens and the need for lower taxes. But when he tries to blame the current downturn on a party that has just barely controlled Congress for 12 months, I can’t take him the least bit seriously.

    Congressman, this is why we (GOP) are going to lose the White House. This is why Americans believe (rightfully so) that Republicans have lost their way. Because if our Congressman are all as clueless as you then it speaks sadly for our future.

    If you can’t sell it to those mouth-breathers, good luck with the general public. Everyone knows it’s the housing/credit bubble that’s at fault, and less than a year of putzing around by Democrats wasn’t gonna cause something like this.

    On the other hand, a few are willing to bite on the reverse-tinkerbell school of economics…

    …Even though they haven’t been able to get any of their idiotic agenda passed, just talking about it for the last 15 months has been enough to trash the economy…

    …And I don’t think the D’s understand that their statements causes some changes in the market conditions…

  23. 23.

    Ellison, Ellensburg, Ellers, and Lambchop

    On the other hand, a few are willing to bite on the reverse-tinkerbell school of economics…

    Talking down the economy (the reverse-Tink) is only a valid economic mechanism if the lefty press/pols can blame Republicans for doing it, like they tried when the tech bubble burst on Clinton in 2000-01. A short history lesson from Salon:

    By Alicia Montgomery

    March 23, 2001 | WASHINGTON — Democrats aggressively pursued a line of attack on President Bush this week that had been kicking around newspaper Op-Ed pages and cable TV talk shows for a while: Bush, as House Minority Leader Dick Gephardt, D-Mo., put it Monday, is guilty of “a talking down of the economy…”

    Sen. Charles Schumer, D-N.Y., warned Bush to “stop talking down the economy”… Gene Sperling, former national economic advisor to Clinton, wrote in the Boston Globe that the “president risks creating a negative self-fulfilling prophecy.” Democratic New York Rep. Nita Lowey, among others, was already preparing to blame Bush should the economy keep heading south…

    Democratic Senate Leader Tom Daschle of South Dakota is even blaming the current malaise on the new administration. “Obviously,” he said, “the result of the rhetoric is an economic slowdown.” That will only improve, he said Wednesday, “if the president and those of us don’t talk down the economy but try to encourage people to be confident again…”

    Bush first voiced concern in late November and early December, months before he took office. Then President Clinton scolded him for it. Then in February, the Commerce Department released figures that showed that the economy grew at an anemic 1.1 percent during the last quarter of 2000 — a significant slowdown from the 5.6 percent growth rate achieved in the second quarter of that year — and Bush was proven right.

    So has the press been consistently reporting a Democratic “talking down” of the economy in 2007-08? Yeah, right. Even suggesting it is silly.

  24. 24.

    TenguPhule

    So has the press been consistently reporting a Democratic “talking down” of the economy in 2007-08? Yeah, right. Even suggesting it is silly.

    I’m sorry, but the EEEL Pony Party that tinkers with economic indicators to say what they want needs to kindly STFU and let grownups try to figure out a way to clean up the mess.

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