We are such optimists, we Americans - it's how we got to where we are. Yet we have such short memories. When times are good, unemployment is low, tax receipts are up, housing values are through the roof, business profits are pouring in, we assume there'll never be another recession again in the history of the United States.
Then, it happens.
What will this next recession look like? Will it be worse than most others, or even the last? When will it start, and when will it end?
From a fellow blogger, Thomas Palley:
After having been wrong once, it’s either brave or foolish to make a second prediction that the next recession will be deep and difficult to escape. But the facts point to it being just that—despite the optimism of the Federal Reserve. This is because the economic factors that helped escape the last recession have been largely exhausted, and will not be available to fight the next recession.
Homeowners have already significantly refinanced so that the stock of high interest rate mortgages available for refinancing has been depleted. Consumers are borrowed to the hilt, leaving less access for further borrowing. House prices are already at all-time highs by every measure—so lower interest rates are unlikely to spur another price boom, with all its expansionary effects. Instead, house prices could actually start falling as new supply continues to come on to the market, and this effect could be amplified by recession-induced job losses that trigger mortgage defaults by workers losing their jobs. Taken together, these factors point to future interest rate reductions likely being akin to pushing on a string.
March 22, 2006
Posted by blogger at 3/22/2006