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In macroeconomics, a Recession is a decline in any country's Gross Domestic Product (GDP), or negative real economic growth, for two or more successive quarters of a year. However, this definition is not universally accepted. The American National Bureau of Economic Research defines a recession more ambiguously as "a significant decline in economic activity spread across the economy, lasting more than a few months." A recession may involve simultaneous declines in coincident measures of overall economic activity such as employment, investment, and corporate profits. Recessions may be associated with falling prices (deflation), or, alternatively, sharply rising prices (inflation) in a process known as stagflation. A severe or long recession is referred to as an economic depression. A devastating breakdown of an economy is called economic collapse. Newspaper columnist Sidney J. Harris amusingly distinguished terms this way: a recession is when you lose your job; a depression is when I lose mine.


Reprinted from MoneyNews.com
Recession Points to Lower Rates

John Browne
Monday, Nov. 19, 2007


Same store retail sales are showing signs of trouble, with 26 stores showing negative growth, three of them in double digits.

Despite massive discounting (and, ultimately, profit erosion) Wal-Mart's sales growth dropped from a growth rate of 5.0 percent to just 0.7 percent. Even JC Penney — a prime middle markets store — reported a negative 1.8 percent!

It appears that the decline in consumer spending, as I have long forecast, is now at hand.

CNBC reported that real wages are falling by 1.4 percent.

Some commentators point to a drop in consumer debt as a good sign: Consumers are paying down their debts. It is indeed a good sign in the long-term.

But as we head into a recession, it is bad news. The American consumer appears to be cutting back.

It is clear that recession is close at hand. Indeed, as I have said for some time, we feel the fourth quarter of 2007 will prove to be the start of a long and deep recession.

Normally, recessions start with a decline in consumer demand and lead to weakening real estate prices.

What is strange about this recession is that it has been triggered by a major collapse in real estate prices.

In addition, this recession follows a boom during which leverage and liquidity have been at historic highs. I think this bodes ill. It will be a long and painful recession.

Now, we also see inflation rising. The producer wholesale price of consumer products has come in at a whopping 7.4 percent. Will this increase be absorbed by corporations, reducing earnings, or passed on to consumers and place further upward pressure on consumer inflation (CPI) already running at an annualized rate of 3.6 percent?

So the "stealth inflation" of which I have long warned is now coming out into the open.

In short, as the Fed mentioned in its last statement, the forces of recession and inflation are roughly "in balance." Inflation and recession together spells stagflation—a great economic ill.

Was the Fed's statement, therefore, the first official acknowledgement of stagflation? I think, yes!

This is very bad news. But, in addition, our economy is bedeviled by a plummeting dollar.

As we have pointed out in detail before, a falling dollar is both highly inflationary and likely to prove devastating to our balance of payments over the long-term.

Both a stronger dollar and inflation call for higher rates. But, increased rates could drive our coming recession into a depression.

So, our Fed is between a rock and a hard place. That, in my view, is why the Fed has hesitated for the past year. They have talked tough on inflation but left rates on hold, with "real" rates (net of inflation) actually tightening as I warned of a housing bust-led recession.

In view, if they were not prepared either to defend the U.S. dollar or to hit hard at inflation, I think the Fed should have lowered rates very aggressively over the past few months.

I say aggressively because I sense an unusually deep, housing-bust-led recession is ahead and I believe that history shows it takes some nine to 24 months for lower rates to gain traction and stimulate economic growth.

But that is all looking through the rear view mirror.

In other words, the prospect of a deep recession, especially in an election year, will bring very great pressure on the Fed (despite its so-called independence) to forget inflation and the dollar's plight and concentrate all efforts upon getting us out of inflation, even if it is late — and late it will be!

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It all adds up to a financial nightmare, with stagflation raging. However, other nations will also face difficulties. The subprime "toxic waste" has been sold internationally. All economies depend upon the viability of paper money, now threatened by a dollar collapse.

In the past few days, we have seen both French President Nicolas Sarkozy and Japanese Prime Minister Yasuo Fukuda expressing great concern over the plunge of our dollar.

I believe that the recession, I have long warned of is now squarely on the cards.

full story:

http://moneynews.newsmax.com/money/archives/articles/2007/11/19/103210.cfm?s=al&promo_code=3DCE-1
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