Recession is a technical term: and refers to a period in which economic growth is negative for two successive quarters. There is a snag with that definition. How do you know you are in the middle of a recession, when actually it can only be truly measured in hindsight?
For that reason, the Fed has been notoriously bad at saying when the US was in recession: often getting the call completely wrong, famously denying the US was in recession earlier this decade, when eventually it turned out it was.
And now a growing chorus of voices are saying the Fed has got it wrong again. Now David Rosenberg, chief North American economist at Merrill Lynch has joined the list of pessimists.
Talking to the Telegraph, Mr Rosenberg pointed to what he called the four key barometers, that’s employment, real personal income, industrial production, and real sales activity in retail and manufacturing, and said, “According to our analysis, this [recession] isn’t even a forecast any more but is a present day reality.”
Last year, Joseph Stiglitz, former chief economist at the World Bank, and winner of the Nobel Memorial Prize in Economics, and a man who is drawing increasing eulogy as one of the top economists in the world (he has even been compared to Keynes) told Bloomberg “I’m very pessimistic…It’s not just the housing sector. Over the last five to six years our economy has been bolstered by the real estate sector…Americans have been taking money out of their houses to finance a consumption binge.” He said, “That game is over…Alan Greenspan really made a mess of all this…He pushed out too much liquidity at the wrong time. He supported the tax cut in 2001, which is the beginning of these problems. He encouraged people to take out variable rate mortgages. That helped create the subprime crisis.”
Messers Stiglitz and Greenspan, it appears, are becoming economic rivals. The former World Bank man, for example, lambasted the IMF and Fed for the way they handled the East Asia and Russian debt crisis in the late ’90s , saying their policy mistakes confined economies in the region to unnecessary hardship, while Greenspan says the IMF action helped stave off recession in the West.
But then, Stiglitz is not alone in his criticism of Greenspan. Recently, Patrick Artus, one of France’s most influential economists, said Greenspan was a “very bad” Fed chairman. In an interview with Bloomberg he said, “Greenspan was an arsonist and a fireman combined. He derived all his glory from his reaction to the savings-and-loans crisis, to the collapse of Long-Term Capital Management LP, and to Sept. 11, 2001. But LTCM and the savings-and-loans crisis were his doing. He absolutely failed to see where the malfunctions in the US economy were.”
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