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What is a Recession?

“According to Hoyle“…

Recession Two consecutive quarters of decline in real GDP is commonly taken to be a recession. The National Bureau of Economic Research, a private organization, effectively decides when recessions occur, however, and the actual dating process is determined by judgment rather than a formal rule.

So which is it? Is there a firm definition, or is it completely up to judgment? I’d say both. Examining the clinical data, according to the BEA:

  • 2007 Q4 GDP — 0.6%
  • 2007 Q3 GDP — 4.9%
  • 2007 Q2 GDP — 3.8%

That doesn’t look like the classical definition of a recession to me. It looks like growth of the GDP is slowing, but not in decline. The economy is still growing, just not as fast. It’s very interesting that you hear so much about us being in a recession, or headed for a recession, or whatever. It’s almost as though someone is trying to convince us that there is a recession, huh? I think that’s where judgment perception comes in. It seems as though we are in a recession, mostly because everyone perceives we are. And that’s probably the only thing that really matters. I just hope that no one is using that perception for something like political gain.

Nah, that would never happen.

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Luckily, We Have The Fed

Admittedly, I am more stupider than a lot of people when it comes to finances.  So someone please tell me how the stock market really works.  See, I thought the stock market reacted to what is going on in the economy.  I didn’t realize it was the economy.  

Apparently, I was wrong, because the Federal Reserve has announced an emergency rate drop to “fix” the stock market.

The Federal Reserve, confronted with a global stock sell-off fanned by increased fears of a recession, slashed a key interest rate by three-quarters of a percentage point on Tuesday and indicated further rate cuts were likely.

…

This move is not an instant fix,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics

“Fix” is actually the perfect word.  Markets can be “fixed” kind of like a fight or the World Series can be “fixed”. 

So let me get this straight.  We (individually and as a country) have borrowed too much money, which has us headed towards a recession.  The obvious solution?  Lower interest rates to banks, which allows them to lower interest rates to consumers, which allows them to borrow more money.  Makes sense right?  Right?

“You can’t borrow your way out of debt”–Dave Ramsey

So rest easy tonight, all of ye lower and middle income Americans.  Though the cost of milk, gasoline, and Coors Light doth drift higher whilst thou income remaineth the same, panic disturbs not the slumber of bankers, barons, and brokers.  So long as the DJIA remaineth propped by policy, politicians, and ponzi schemes, you need not be troubled by the frightful prospect of competing on a level playing field and moving forward.

Ah, what the hell!  You can just put it on your credit card, right?  Rates have never been lower!!!