8/12/11
Re: Recessions
History would disagree with you on the necessity of a financial event to push us into recession. Recessions follow quarters of below potential growth (now popularly called stall speeds) that are not self sustainable: growth falls to a level where job growth cannot be in excess of population growth which leads to rising unemployment, falling real estate values, and eventually falling business and consumer confidence. You essentially fall into a disequilibrium state that has always resulted in a recession absent extraordinary monetary or fiscal action. We are in such a state right now and certainly a bad financial or oil price event could accelerate a recession, but they are not necessary to have a recession. Some would argue that we are Japan and we will just stay in stall speed for an extended period. I have my doubts because stall speed has very different implications for a shrinking population than it does for a growing population. A different argument is that temporary factors (e.g. Fukishima nuclear disaster and MENA unrest) make it look like stall speed but we are not actually in it. I would argue that indicators like GDI (gross domestic income), CFNAI (Chicago Fed National Activity Index), and the employment to population ratio which declined to stall speed before the temporary factors argue otherwise.
