January 18, 2012

The Recession of 2012

I don't know if this will come as a surprise to most people.  Most people don't have to be shown statistics to know what they can already sense from their daily observations.

Nonetheless, Dr. Lacy Hunt and Van Hoisington, get right down to brass tacks with their opening sentence: "As the U.S. economy enters 2012, the gross government debt-to-GDP ratio stands near 100%." They cite an influential 2010 historical study of high-debt-level economies around the world, by Professors Kenneth Rogoff and Carmen Reinhart, that concluded that when a country's gross government debt rises above 90% of GDP, "median growth rates fall by one percent, and average growth falls considerably more."

And that, Hunt and Hoisington note, is exactly what is happening to us: "After suffering the most serious recession since the 1930s, the U.S. has recorded an economic growth rate of only 2.4%. Subtracting 1% from this meager expansion suggests that the economy should expand no faster than 1.4% in real terms on a trend basis going forward, which is virtually identical with the economy's expansion in the past twelve months."

Bottom line, say the authors: expect recession in 2012, here and in most of the world.

This article is not as "stuffy" as you may initially think.  There is loads of good information in it and I will break some of it out in posts to follow.

No comments: