Is the US Heading Into a Recession?

I am not sure who gave the CNBC analysts economics degrees, but whatever institution did needs to loose their licenses. Recession? What recession? My argument will begin with the exact definition of what a recession is. A recession is typically a decline as a whole with the GDP. But there is a catch, there has to be two negative quarters in a row, meaning one after the other, in order to declare a recession.

Now, we have yet to have one quarter, so I am not sure what these idiots are talking about. Yes, it is possible we could in fact slip into a recession; but that will only be likely, notice the word likely, if we have the first quarter.

You may ask, what are key indicators to the beginning of recession? First let me tell you that there are no indicators that are completely reliable. Many think that when the stock market drops, that we are entering one. Yet, this is the opposite as only 50 % of the time do we actually enter a recession when the stock market drops. Of this 50%, the decline began after the stock market went down. Another indicator would be the Invested Yield Curve that was developed by Jonathan Wright. The yield uses 10 year, three month, and Fed Overnight funds as predictors. This is of course not an efficient way as well because generally, the recession takes place six to 18 months down the road. The third predictor that I think is rather interesting would be the unemployment level and initial jobless claims. If these are on the rise, then many think that a recession is right around the corner. This, as well as many others such as index movements do not accurately predict the time of day let alone a recession.

What should we do if we fall into a recession? Well that varies and it depends on the type and strength of the reception. I support Laissez-Faire economics and believe fully that the market forces should run and let the chips fall where they may. I think controlling the evolution of a recession can cause more harm than good as it prevents the worse from happening and typically there is a build up to an explosion versus a steady stream. A lot of people would disagree with me and say that deficit spending by the Government would create growth. I am not sure how spending money we do not have would help, but that I just me. Another group, supply-side economists, would suggest that tax cuts would promote capital for businesses. Typically too lenient of taxes have caused the mess in the first place.

So, are we headed for a recession? Unfortunately, we will not know until we are there. But I believe that we cannot declare a recession until we have the two quarters of negative growth. So, as for now, we are in the clear.