posted April 26, 2008 09:46 AM              

Three economists go hunting. They come across a large deer. The first economist fires, but misses, a metre to the left. The second also misses, a metre to the right. The third does not fire, but shouts, "We got it! We got it!"

Bad rap? How about this. Economists can't agree on what is a recession, let alone if there is one, and if so when it began, ended or will end. Some economists define recession to be a period of two successive quarters of negative GDP growth. But this is not universally accepted. The US National Bureau of Economic Research defines a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months." A recession, it says, may involve simultaneous declines in measures of overall economic activity like employment, investment, and corporate profits.

So where does the US stand right now? Is the economy in a recession or not? The answer depends on who you talk to and when. One thing everyone agrees — the economy is slowing down. But as for chances of a recession, analysts put it anywhere from 30% to 65%. The safest ones (the 'we got it!' kind) say Americans won't even know they're in a recession till they're in the middle of it, and it'll be over by the time they realise.

The red flag about a possible recession went up last week when US labour department announced 4,000 jobs were lost in August, the first such decline in four years, and a stunning reversal from the expected gain of 115,000 jobs.

But what is rattling the analyst community now is the job loss figures coupled with the housing market meltdown and the credit crunch. Early this week, economists at UCLA blurted out what has been lurking on everyone's mind: The US will experience a "near recession" in the final quarter of the year and the beginning of 2008. Economic growth, they said, is expected to be only around 1% and the unemployment rate will likely reach 5.2% by mid-2008, up from the current level of 4.6%.

"Such an economic performance is almost as close as you can get to avoid the technical definition of a recession," economist David Shulman wrote in the latest UCLA Anderson Forecast, darkly adding, "Of course, when the economy slows to 1%, it runs the risk of falling into an actual recession just as when an airplane's velocity dips down to its stall speed and falls out of the sky."

That's the airplane Tom, 28, and Wendy, 25, were flying high on in 2005 when they bought a $600,000 sea-facing home. Tom was a car salesman who was making $100,000 a year with commission; Wendy waitressed and did admin work to bring around $30,000. He had bad credit from years of reckless spending; hers, based on a thrifty living, was better. Their combined income and her credit history was sufficient for a mortgage company to pony up 95% of the loan on the expansive home. They moved in on a $3,700 monthly mortgage, expecting the good times to last forever.

But with the automobile industry spluttering, Tom lost his job early this year; nothing else paid anywhere close to $100k. Suddenly, the $3,700 mortgage looked unaffordable. To compound matters, the couple had taken $60,000 equity out of the projected rise in their home price. Now though, the housing market began tanking, and what they thought was a $600k home is down 20%.

Tom and Wendy are the typical victims of a nationwide mortgage meltdown in which foreclosure has eclipsed foreplay as America's more immediate concern. The scary part of the meltdown is that many analysts are saying the worst is yet to come. Even the National Association of Realtors, which typically tries to talk up the housing market, is projecting that the construction of new homes will fall to 1.4 million this year from 1.8 million last year.

A declining housing market means many parts of the economy begin to stall. Already the job loss is spreading from housing and construction industry to manufacturing and financial sectors. Automobiles has been in the pits for some time. A housing collapse means housing-related purchases, such as furniture and appliances, will decline. At the same time, banks are tightening credit. It's a slippery slope.

So will the contagion touch India? Some analysts think that India is relatively cushioned from any US recession. Suman Bery, director-general, NCAER, and Columbia University don Arvind Panagariya are among those who feel India's lack of full currency convertibility will prove to be a blessing. India also does not rely so much on exports to the US.

But some others feel India is now tied at the hip to the world economy. Just think how much of Indian corporate revenues, especially in the IT and services sector is US-derived, and you get an idea why India will catch a chill of US sneezes. Still, a US recession is not something that India needs to panic about. The US was last in a recession post 9/11, when the Indian economy was on an upswing. Economists joke that a that a recession is when your neighbour loses his job; a depression is when you lose your job too. By that token, a depression, which is a severe or long recession is not even on the horizon, let alone a devastating breakdown of an economy that would constitute an economic collapse. The good times will continue to roll in India, albeit a little slowly.

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http://timesofindia.indiatimes.com/World/The_United_States/Recession_ ahead_for_US/articleshow/2373020.cms

an old one, but how much is true ?
the economic times and other financial newspapaers speculate on a daily basis, ofcourse with a fair share of Red markers nee stock and real estate ...the stock markets in Asia have shed Billions on this fear the real estate markest have started a downward spiral after 4 years on growth

posted April 26, 2008 11:19 AM            

The different definitions for recession permits the "chicken littles" to screech that the economic sky is falling...when in reality it's a normal part of the business cycle. Read O'Bomber and Hillary who are attempting to con their followers into believing the "sky is falling" and they have the fix.

The US economy has a normal cycle going back to the 1800's. Peak of expansion to the peak of the next expansion, the cycle lasts on average about 54 months. This cycle includes the peak of economic expansion through downturns..perhaps recession, through a bottoming out then another expansion to it's peak when another downturn begins. The reasons for this cycle are understandable to those who think about what's really happening during each phase of the cycle.

The Federal Reserve Act of 1913 was supposed to do away with all that by doing away with the cycle and keeping the economy on an even keel...a slowly rising growth instead of the ups and downs. That didn't happen. In fact, the FED is responsible for the depression of the late 20's lasting into the late 30's. They reduced the money supply...took money out of circulation and caused the collapse of the US economy for years.