This is No Recession...Oops...Yes it is

I think back to earlier in the year when our government officials and the people in charge of making some of the decisions that eventually affect our economy were proudly and confidently stating that the economy here in the United States is not in a recession. I wonder what they're saying now that the independent and bipartisan Bureau of Economic Analysis declared that not only is the country in a recession but has been for the past year. I guess now that the elections are over and we're in full lame-duck season, anything goes.

As an economist myself I am often asked whether or not it was possible to predict this cycle and though I would love to spout words of wisdom on the subject I can honestly say that it's not always possible. Sure there are times when all the signs are pointing to the fact that the economy is in a downward spiral but if you're constantly being told that this is just an illusion or being told that this is a temporary speed bump in the road, then you don't know what to think. I can only think of the examples of Enron or WorldCom when the executives at these companies encouraged their employees to invest in the company while they divested themselves of stock prior to the collapse of these companies.

Some point to the implementation of laws like Sarbanes-Oxley and say that greater oversight on companies has lead to problems with the economy. I wonder, is it wrong of the government to have implemented changes to the law so that executives at companies like Enron are held accountable after ruining the lives of so many employees? Sure they have to report the truth about their yearly earnings but isn't that what they should be doing in the first place? Part of the problem appears to be the chain of events that have occurred in the past year or so and that's that the country has been spending itself silly. All of the expenditures are likely needed and I'm not going to argue against funding one thing versus another but in spending so much sure there has been impact on the economy but on the flip side, the average person among us out there has been affected by the credit crisis.

This was also part of the reason the economy has been in the turmoil that it has been. I mean think about it. A recession typically occurs when spending decreases and the jobless rate stays constant or increases. The past few months have seen nothing but these types of figures. Why will consumers want to spend more if they think their banks or credit lenders are suddenly going to cut off all support and send them to the poor house? Why spend on a brand new gas-guzzling car if the company that makes them is on the verge of going under and doesn't think they are accountable? What if everyone is so freaked out about investing if they feel that the market will only go lower? Most investment advisors say 'wait until the market bottoms out before investing.' We've gone pretty low but can we go for more?

I remember when the Dow Jones broke 10,000 for the first time. It wasn't expected to stay there for long. It stayed a lot longer than many people expected. I also remember saying to someone that the Dow would hit 8,000. We're getting close and at the current rate, we are only going to get closer. I'm sure the market will eventually correct itself because people are going to find that they can sink money into the economy at a good price and grab shares of companies that wouldn't have been possible before. It's hard to figure out what to invest in given that most of the companies in the S&P 500 have also been suffering of late. As an economist I know it's not the fault of the investment firms that our 401(k)'s reside with. They tell you the best they know but even they couldn't have predicted how drastically the market has changed. It's probably a good time to invest but until people gain some level of confidence, it's difficult to say just how much lower the market can go.