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30% chance of a another recession?

August 19, 2011

Probability of Recession: Is It Really One in Three?
By Bill Conerly,
Conerly Consulting
, Businomics

Larry Summers recently wrote in the Washington Post:

On the current policy path, it would be surprising if growth were rapid enough to reduce unemployment even to 8.5 percent by the end of 2012…. With growth at less than 1 percent in the first half of this year, the economy is effectively at a stall and facing the prospects of shocks from a European financial crisis that is decidedly not under control, spikes in oil prices and declines in business and household confidence. The indicators suggest that the economy has at least a 1-in-3 chance of falling back into recession if nothing new is done to raise demand and spur growth.

Summer Summers is a voice to be respected. He is a top-notch economist who has served as Treasury Secretary and President of Harvard. How do I assess his view?

He’s probably too gloomy. The more time people spend in Washington, they more importance they give to public policy. I’m enough of a Keynesian to think that fiscal policy matters a little, but it generally matters far, far less than newspaper headlines would suggest, and much much less than Beltway economists think.

He’s right about the risk. I’m not saying the odds are 1 in 3, but what if the true odds are only 1 in 10? I say “only” 1 in 10. You have insurance for risks far less probably than 1 in 10 (death, auto accident, fire, etc.)

What should business management due about economic risk? I’ve suggested a process for economic contingency planning. I suggest that every business, government agency and non-profit convene its management team and board and do some contingency planning for the possibility of another recession. However, my best forecast right now is that growth will accelerate enough to avoid a recession; not enough for us to feel good about the economy this year or next, but enough to avoid a recession. But I’ve been forecasting long enough to be humble about my ability to predict the next recession.

  
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Discuss this article

James August 21, 2011

Has there ever been a time when we didn’t have a one in ten chance of a recession stalking us, whether we acknowledge it or not?

Richard August 29, 2011

Unless something is done to stop the complete destruction of the middle class through the mass foreclosures which devalue even more home prices which lead to more foreclosures, the chances of a deepened recession is 100%. The question should be whether or not some major event (hurricane, earthquake, Europe, Middle East, China, etc.) doesn’t push the economy into depression.
It’s past time to label people who are foreclosed on as deadbeats or irresponsible and dismiss them as losers. Look at your home equity and 401k. Are you willing to continue watching them drop like a stone so the Banks (already guilty of fraud in this matter) can be bailed out again? Are you willing to take a big hit to support a sink or swim mentality?
No matter how you feel, everyone of us is in the same boat. The boat is leaking badly and unless we act, it will sink. So, do we gain some extra time by throwing some of us overboard (easy, but wont stop the sinking)? Or, do we work together to stop the leaks and bail out the water.
You can’t let politicians make this decision. They have shown they lack the ability to think past the next election. They work for us, the people. Ever so often, they have to be reminded of this.

Sharon Kelly August 29, 2011

Richard, your comments are so well thought out!!! Yes, the middle class is paying our taxes. And now, so many of them are feeling “pinch” now. Would really like to see politicians implement a “real long-term” positive approach to this Dilemma. Isn’t this suppose to be America !!?

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