December 2nd, 2008
09:54 AM GMT
It's official. The U.S. is in recession and has been since December of last year, according to the National Bureau of Economic Research, the folks who keep track of business cycles.
The last two recessions (1990-1991 and 2001) lasted eight months each. And of the 10 previous recessions, only two lasted longer than a full year. I predict this one will at least match the ones in the early 1980s and 1970s that each lasted 16 months. It may even exceed those, but this is not your typical recession.
This is a recession generated first by a downturn in housing which then led to losses by financial institutions - a full-blown financial crisis, the likes of which we haven't seen since the Great Depression.
Credit losses and writedowns at the world's largest financial firms are approaching $1 trillion and when the final ink is dry, that figure will be much higher.
Financial institutions are repairing their decimated balance sheets, hoarding cash, and making it tough to get credit. I suspect this process of deleveraging will last at least another year if not longer.
Oppenheimer Analyst Meredith Whitney predicts that credit card companies will pull back on lending by more than $2 trillion over the next 18 months in what she calls a "dangerous and unprecedented" move for U.S. consumer spending.
So how long will it take the U.S. economy to get back to normal? I spoke with Rob Carnell today of ING. He's worth listening to on the U.S. economy because he and his team have been ranked by Bloomberg as being the most accurate in their forecast for the past two years.
He told me it could be 2011 before we see more typical levels of GDP growth again, typical being about 2.5 percent growth. If he's right, and I suspect he will be, a lot more pain lies ahead for the U.S. economy and other economies as well.
Manufacturing activity in the U.S. is at its lowest level in 26 years and at a record low in the Eurozone and China as companies and consumers pull back. Unemployment is getting worse.
Oil prices have plummeted by more than two thirds in just six months as worries about a worsening global economy accelerate. As one analyst wrote. "It's hard not to be concerned about the prospects for a multi-year global contraction. The daily flow of news is unrelentingly negative and comprised of many issues that should take quite some time to resolve."
The bottom line is this economic downturn is going to be a drawn out affair. Expect a lot more bad news to come, and expect it to come for sometime.
Let me know your thoughts.
Are you pessimistic about when the U.S. and global economies will recover?
Do you agree that it could be at least two more years before growth gets back to more normal levels?
What else could authorities do that they're not doing to try and speed up the recovery?
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