Recession Definition

The current US economy is the very definition of a growing recession

Investopedia has the following recession definition:

A significant decline in activity spread across the economy, lasting longer than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP).

But defining the word is not enough.

Without knowing how to put the definition in context, it means nothing to you. What you need is a working knowledge of not only the real cause of recessions, but also the false cures that are widely accepted as the end-all, be-all of economic thinking.

Recessions Are Great

Not exactly what you expected to hear, right?

The truth is that recessions aren't exactly great - but they are absolutely and unavoidably necessary!

Sure, during recessions, business, productivity, employment, and the general sense of economic well-being all go down with GDP growth, so nobody really "likes" them. Yet, they are "good" in the sense of correcting excesses.

Imagine you could party all night and drink to excess without having a hangover the next day. You'd probably be more inclined to do it all the time, seriously damaging your brain and ody in the process.

Recessions have the same functions as hangovers. If the economy is pumped up to excess (often to make politicians in power look good and help them with their elections or re-election) recessions bring it back down to reality.

In the process of firing up the economy or keeping it from correcting downward so that politicians are well-served, people get used to the "party" going on and on, without interruption. So, when a downturn eventually looms, they demand that the Federal Reserve, which controls the US money supply and therefore the level of economic activity, keep fueling the economy so they won't have to suffer the consequences.

The problem is, though, that the "cure" is worse than the disease, and actually only prolongs the disease by hiding the symptoms from the population.

'Party All Night' Makes Alcoholics

Essentially, it is a process that feed on itself and creates a type of addiction, but it does more than that; it actually makes the problem worse.

Just like a binge-drinker gets sicker the longer he continues on his binges, the underlying disease of an artificially pumped up economy grows like a cancer. If the economy is denied a healthy recession every now and then, if the party-goer isn't "cured" from his temporary licentiousness by a heavy-duty hangover the morning after, the problem gets worse.

That's why the current US recession is so dangerous.

It has been forestalled for far too long. Whatever recessions we have had in the past were kept far too mild by the US Fed lowering interest rates in order to ensure what it calls a "soft landing."

The problem is that the economy never "landed" at all as the result of this. Eventually, an economic juggernaut that isn't allowed to land will run out of fuel and simply crash.

That is where we are today.


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