A recession in the US, with a twist.
Economists are once again predicting a recession, spurred by the usual suspects; credit crunch, housing market woes, and oil being hotter than magma. A few things interest me in the latest nostradamus predictions from our pessmistic group of economists. Firstly, economists seem to be relying on a ‘dominos’ effect to come through and rip out the heart of the US (and world) economy. The credit crisis leads to expensive debt, which leads to less housing production, which leads to less jobs, which leads to less consumer spending, which leads to less economic activity, which leads to the *gasps for fresh air*, the R word.. Thats all well and good, but no one has actually proved this link to be anything more then an idea, much less a theory. Economists may point to common sense, but rest assured, if an economist ever tells you that ‘common sense’ means you should do A, run and step over your own mother to perform B and use C as your back up plan.
Next observation; this recession is predicted to be a ‘US-only’ recession. No ones said this explicitly, but its been implied through all the hype surrounding the emerging markets. In short, China, India, South America, and some Eastern Europe countries are so hot right now, and so different to what they were even 5 years ago, that even the mighty economy of the US couldn’t pull back those enormous growth figures. In 2001/2002, a recession was always ‘worldwide’, and no country could escape an economic downswing from any of the big players. Now in 2007 (or 2008), the large sums of money the emerging markets have vested across the board don’t only keep the economies from sinking; they can actually offset a US recession through sheer balance sheet strength. That sounds like a globalisationists wet dream, so why aren’t the economists buying it? I believe its the lack of data about intermarket trends that are holding off economists from making optimistic predictions. Most modern economic history consists of the big guys all trying to stay balanced (North America, Europe, Japan), with most slowdowns having a knock on effect (the 1990 recession in the US, for example, was a mostly Japan created phenomenon). But with so many now booming economies, and a seemingly endless maze of business ties throughout the world, could the raft thats keeping the world economy afloat be strong enough to offset a large whale like the US from going under?
Economists don’t think so, but economists prefer to make conservative (and erring on the side of pessimistic) estimates generally. It’d be a big call to say we’re in an unprecedented world economy test phase. I hope for our sake, we are, in the good way.
