Recession? What recession? says Wall St.
The US may be a long way from recession but economists and policymakers probably wouldn't know the country was in one until it was well underway, argues a leading economist who himself puts the risk of such a downturn at 70%. David Rosenberg, chief North American economist at Merrill Lynch, who has long been forecasting the US housing market would crumble and pressure consumer spending, says the Wall Street consensus has missed all five recessions dating back to 1973, even on the eve of the downturn. "Since very few macro forecasters, if any, ever publish negative growth rates in their GDP spreadsheets, they end up missing the recession even when it is staring them in the face," Rosenberg said in a research note. The average growth forecast for the advancing year, just as a recession is unfolding, has been 2.6%. The actual growth has shrunk on average 0.6% in the past five recession years: in 1973-75, 1980, 1981-82, 1990-91, and 2001. Rosenberg adds policymakers hardly get it right either, including Alan Greenspan, former chairman of the US Federal Reserve who said in August 1990, just after the recession began in July, that "there was no evidence of deterioration in what was a very sluggish pattern." In Jan. 2001, Greenspan forecast growth of 1.7% for the first quarter. Data later showed it to have contracted 0.5% as a recession began in March.
A recession is traditionally defined as two successive quarters of contracting activity, though the National Bureau of Economic Research, widely recognized as the final arbiter of the US business cycle, defines it as "a significant decline in economic activity spread across the economy, lasting more than a few months." Thus it declared a recession in 2000-01 even though it was a start-stop affair, with growth contracting in the third quarter of 2000 and the first and third quarters of 2001, interspersed with quarters of growth. Of course, hindsight is not a luxury most economists have. While Wall Street and Bay Street are not normally in the business of flagging bad news - it rarely sells stocks - Peter Dungan, director of the Policy and Economic Analysis Program at the University of Toronto, says the Street's prowess may have been shaped more by the changing business cycle than any inbred optimistic bias. A more gentle cycle may have simply made forecasting more difficult. Indeed the US economy expanded for a record 10 years until the last recession in 2001 while Canada has not had two successive quarters of negative growth since the 1990-91 recession, though some economists figured the soaring loonie might ground it in the recent cycle. Rosenberg, who has no problem being a contrarian, says his recession checklist is flashing for the US economy. But Dungan says a recession is unlikely, mostly because there is nothing constraining the Fed from acting to stop it.
(National Post 070913)
...because the Fed can create money out of thin air now that it is fiat currency, legal tender in itself and not tied to any natural entity or process. Need a trillion dollars? No problem, just print it. Sure, each dollar is worth a whole lot less, but who cares? That doesn't show up as anything in the books so everything's a-ok. WHY DO WE CONTINUE TO LISTEN TO THE ECONOMISTS???? WHY????