Thursday, July 16, 2009

Will the recession really be over "by the end of this year"? If so, what does that mean?

At the start of the current recession, the consensus view was that it would be a short and shallow one lasting some eight or nine months, like the recessions in 1990-91 and 2001.

Nouriel Roubini and other "doomsters" (such as me) argued that the recession would be deep and long-lasting, and we have been proved right so far. Roubini argued that the recession would last 24 months, and we are more than 10 months beyond the consensus forecast at the time the recession started - and have only some 5 months left of the recession, according to Roubini's forecast. My view is that the recession could end very soon if the US Congress tackles the key issues of the ack of transparency, the multiplication of leveraged speculation, and the speculation (about which I have written and spoken extensively, most recently by invitation at the Israeli Chambers of Commerce in Israel).

The US Congress is debating those very issues right now - and the question is whether or not they choose to address those issues at least as vigorously as suggested by the Obama proposals. In my articles published in the New York Times Online ("DealBook" section) a couple of weeks ago, I have argued that a more vigorous approach would be even better. But at least the response of Congress should be no weaker. Provided that were to be so, then the recession could end within days.


Whether we see sustained recovery depends on further factors, specifically how quickly employement returns to the US economy, and how quickly the US consumer is able to and does starts$ spending again - but this time out of savings, not merely by increasing debt!

Households in the US are already overloaded with debt, as is the corporate sector, and of course also the government with its now unbelievably massive fiscal and public debt.

A renewed bout of recession will therefore remain as a risk. The "bottoming out of the recession" has been based entirely on governments' unsustainable explosion in monetary and fiscal easing - and it will not be easy to get the timing and size of the withdrawal right.

Fundamental questions remain to be answered about the nature of the global economic system that we have at present. I have argued consistently over several years that the human and ecological consequences of the current economic system are set to destroy humanity - much sooner than consensus predictions have indicated even recently.

At the very minimum, questions of ecology and social justice need to be integrated into global economic and financial rules. It is just possible that we may still succceed in the first (environmental issues) at the Copenhagen conference this year. There are also attempts to renew the Doha round to get the WTO talks going again - and, if so, there will be a chance to get issues of worldwide social justice included in any new WTO treaty. However, these represent more or less our last chances to tackle these issues. Ideally, we should go beyond the ecological and social issues to the psychological, cultural and spiritual issues that are at the heart of the repeated crises that are endemic to the nature of the current economic system.

Some of us have already been addressing those issues for ages, others of us have begun to address those issues more recently, and I hope and pray and wish that all of us may begin to see and address these issues urgently and as soon as possible. Sphere: Related Content

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