Defining recession
Recession is the hated word on Wall Street. Its thrown around by the media and the Federal Reserve but why is this word so important? It might just be important because we make it important.
Recession is defined as two consecutive quarters of negative GDP growth. GDP is defined as consumption + gross investment + government spending + (exports − imports). The Federal Reserve can, by lowering rates or printing more money, increase credit supply to keep GDP rising. See, Gross Domestic Product is an easily manipulated statistic. Because GDP is based on the US Dollar, rather than its purchasing parity or its literal weight in gold, the statistic is very prone to change when money supply is altered.
Consider this, in December and January the Federal Reserve sold $60 Billion dollars and now plans to auction off another $60Billion in February. The increase in money supply immediately adds $120Billion to the GDP figure, maintaining GDP growth through inflation. When compared to actual value, GDP is left unchanged, no wealth has been created nor destroyed. The new credit being sold has been created out of thin air, the $120Billion is freshly printed money.
Rate cuts and credit auctions by the Federal Reserve do nothing for the economy. By force, the Federal Reserve creates new credit, ultimately devaluing the dollars you have in your own bank account which is then lent to banks and then the consumer. In the end, the borrower at the bank is borrowing money that was essentially stolen from the worlds bank accounts.
It is important to know that the FED actions are not the best thing for the economy. Wall Street loves cuts because they unfairly benefit the active traders on the Street. An increase in money supply is first seen on the markets, where new money and credit push security prices up. It is easy to see why the markets do well in times of panic when a fresh $120Billion has been created for the last 3 months.
FED interest rate cuts put off economic correction rather than fix it. Investors should be jeering rather than cheering at rate cuts.
Our country had been so much affected by this Economic Recession. there are lots of job cuts and company shutdowns. We are seeing some signs of economic recovery right now and we hope that it would continue.
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I think we are also seeing some signs of recovery from the Economic Recession. Of course, we have no idea of how long it will take to completely recover, but some say it’s going to be longer than for the other recessions in decades. I also scanned an article yesterday that said business owners need a new set of tactics to do well during recovery.