- Looming Signs of a Global Recession - Pancho, 03.07.2001, 20:16
- Re: Das Wichtigste daraus in Kürze... - Tobias, 03.07.2001, 20:54
- "Schluck-auf" ist angesagt, Tobias ;-) - Ghandi, 03.07.2001, 21:54
- Re: Das Wichtigste daraus in Kürze... / dottore hat es schon... / Tobias - JÃœKÃœ, 03.07.2001, 23:33
- Re: Das Wichtigste daraus in Kürze... - Tobias, 03.07.2001, 20:54
Looming Signs of a Global Recession
Looming Signs of a Global Recession
By Anirvan Banerji, gefunden auf TheStreet.com: Link
As I noted last month, the key indicators that officially define a recession are now declining in a way seen only during recessions. Logically, then, there are just two possibilities. Either the U.S. is already in a recession -- or this is the worst nonrecession ever.
Recession kills inflation. And yet there are those who still worry about inflation. Many of them believe, despite clear recessionary signs, that a recession has been averted, and that we'll soon see a recovery that will tighten labor markets and raise inflationary pressures. They are just wrong.
Many economists believe that, at least in theory, when the jobless rate stays below the"non-accelerating inflation rate of unemployment" (NAIRU for short), inflation rises. Last fall, as the jobless rate sank to a 30-year low of 3.9%, well below most estimates of the NAIRU, inflation was widely considered a greater risk than recession -- and that's what the Fed reaffirmed after its November meeting.
Just seven weeks later, the Fed began one of the most aggressive series of interest-rate cuts in its history. As economic weakness continued, so did the rate cuts, demonstrating the severe limitations of the NAIRU as a practical policy tool.
The Falling FIG
With the markets finally buoyed in the spring by lower short-term rates and hopes of a quick recovery, the NAIRU perspective fanned worries that with a recession averted, the expected recovery would soon depress the jobless rate and revive inflation pressures.
Yet the"future inflation gauge," or FIG, which, unlike the NAIRU, has an impressive record of anticipating directional changes in the fed funds rate, continues to plunge, just as it did last fall. In other words, a rise in the funds rate is nowhere on the horizon. The recent rise in inflation was, in fact, accurately foreseen by the FIG when it rose to an 11-year high last spring. And this is the point: Since then, it has plunged, and there are no signs of a bottom.
Federal Funds Rate (%) and U.S. Future Inflation Gauge
(1992=100)
Source: Economic Cycle Research Institute
When I showed the above chart at an European conference last October, economists were incredulous. The chief economist of a large German automaker assured me that the best German economists all agreed that there was no slowdown ahead. In fact, 2001 was going to be the year that German growth finally surpassed U.S. growth. That goal may remain a dream for a bit longer.
If Germany goes into recession, which now appears to be a serious possibility, it would be the first time since the first oil shock a quarter of a century ago that the world's three largest economies would be in synchronous recessions. And you can be sure that their neighbors would not remain unaffected.
Already, with Mexico seeing two straight quarters of negative GDP growth, President Vicente Fox has acknowledged that the economy is in recession. Canada's monthly GDP was flat from December 2000 to March 2001, the latest reading. Across the Pacific, Taiwan, Korea and Australia have all seen one down quarter of GDP.
A recession in Germany, which accounts for a third of eurozone GDP, would have serious, Europe-wide ramifications. Yet the European Central Bank, mandated to conduct a one-size-fits-all monetary policy, has so far been able to cut rates only by a symbolic quarter-point. Clearly, even with a global recession looming, it is pretty much up to the Fed to try and revive global growth single-handedly.
So why did the Fed cut rates by just a quarter-point this week? The reason is actually pretty clear.
Had it cut rates by half a point, the NAIRUvians in the bond market would have started worrying about the Fed ramping up inflation pressures and boosted long rates, which would slow the economy further. This would have been pretty counterproductive from the Fed's standpoint.
In any event, interest-rates cuts act with almost a year's lag, so the size of the latest cut is not the point. The immediate issue -- economic recession -- is still the same. Thus, the Fed will keep moving rates down until there are actual signs of recovery in the leading indicators.
The reality is that we may be facing the second global recession in the postwar era. Thus in a global economy, it should be patently obvious that inflation is a nonissue -- except to the bond ghouls trapped in the NAIRU straitjacket.
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Anirvan Banerji is the director of research for the Economic Cycle Research Institute, which was founded by Dr. Geoffrey H. Moore, creator of the original index of leading economic indicators (LEI) for the U.S. Department of Commerce. Banerji is on the economic advisory panel for New York City, and is also a member of the OECD Expert Group on Leading Indicators. At time of publication, neither Banerji nor his firm held positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Banerji cannot provide investment advice or recommendations, he welcomes your feedback at Anirvan Banerji.
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