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It Is Official–The U.S. Economy Has Been In A Recession for 11 Months and Continuing!

Posted on December 2, 2008. Filed under: Blogroll, Economics, Employment, Energy, Investments, Links, Politics, Regulations, Resources, Video | Tags: Economy, NBER, Recession |

 America is in Recession – That’s official…at last!

 

Money Minute: Recession, Paulson, Oil

 

The National Bureau of Economic Research has determined the U.S. economy entered a recession starting in January 2008 and is still in a recession.

The previous expansion of the economy lasted 73 months from November 2001 through December 2007.

Looks like the US economy is in for a recession lasting from 24 to 36 months.

The actual length of the recession will depend on what fiscal policies are employed to stimulate the economy in terms of both tax reductions and government spending.

Note that the NBER does not define a recession as two consecutive quarters of decline in Gross Domestic Product, that is usually regarded as the defintion of a recession by economists.

Instead the NBER defines a recession as “… a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”

The US economy will most likely have a one quarter decline in real GDP for the fourth calendar quarter of 2008. Assuming this decline in real GDP continues into the first quarter of 2009, than the economy will be in a definite recession as defined as two consecutive quarters of decline in Gross Domestic Product.

Since Barack Obama ran on a platform of raising taxes by repealing President Bush’s tax rate reductions, Obama will only worsen the recession if he persists in his “vision” and implements his tax proposals that he ran on.

Obama Tax Plan

 

Obamanomics: A Recipe for Disaster!

 

 

OBAMANOMICS IS A RECIPE FOR RECESSION

By: Michael J. Boskin

WSJ 7/29/2008

“…

…”

 http://foro.univision.com/univision/board/message?board.id=politicaeneeuu&message.id=63703

A cap and trade tax will only make matters much worse for it would raise prices of all goods and services across the board especially those that require electricity and/or transportation to produce and deliver, i.e. energy that produces CO2.

If Barack Obama postpones his planned tax increases, then the recession should not be as bad as it would with a tax increase. The problem is that uncertainty as to what the tax rates will be after 2010, will only be a drag on the economy.

Hopefully, Obama’s economic team will recommend a reduction in tax rates in particular a reduction in business income tax rate from 35% to 25% and capital gains tax from 15% to 10% or lower, ideally 0%.

More Federal government spending and a postponement of all tax increases until after the the elections in 2010 will most likely be the policy followed.

This will result in a recession of at least 18 months from the fourth quarter of 2008 through the first quarter of 2010.

Obama remorse will set in as the unemployment rate increases above 8% and may even hit 10% before it starts to decline.

The American people will demand that the Open Borders with Mexico be closed, criminal aliens removal and deportation and stiff fines for any business or organization that employs illegal immigrants or criminal aliens.

Approximately 8 to 12 million illegal aliens are currently working in the United States.

The American people will insist that American citizens be hired to fill these jobs and will not tolerate the American elites of either political party proposing another amnesty bill and open borders with historical high unemployment rates in the 8% to 10% range.

An politician that proposes “comprehensive immigration reform” and a “path to citizenship” will be voted out of office.

A repeat of the Carter years appears to be the most likely scenario–stagflation will be back.

Today’s bailout increases in money and credit will result in inflation, most likely starting in early 2011 with the Federal Reserve restricting the growth in the money supply and higher interest rates.

Ron Paul got it right:

Ron Paul and the Austrian Theory of the Business Cycle

Three cheers for Ron Paul, Friedrick Hayek, and Ludwig von Mises! 

 

 

Background Articles and Videos

 

US Economic Recession Prediction 11/02/07

 

National Bureau of Economic Research

“…The Business Cycle Dating Committee of the National Bureau of Economic Research met by conference call on Friday, November 28. The committee maintains a chronology of the beginning and ending dates (months and quarters) of U.S. recessions. The committee determined that a peak in economic activity occurred in the U.S. economy in December 2007. The peak marks the end of the expansion that began in November 2001 and the beginning of a recession. The expansion lasted 73 months; the previous expansion of the 1990s lasted 120 months.

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion.

Because a recession is a broad contraction of the economy, not confined to one sector, the committee emphasizes economy-wide measures of economic activity. The committee believes that domestic production and employment are the primary conceptual measures of economic activity.

The committee views the payroll employment measure, which is based on a large survey of employers, as the most reliable comprehensive estimate of employment. This series reached a peak in December 2007 and has declined every month since then.

The committee believes that the two most reliable comprehensive estimates of aggregate domestic production are normally the quarterly estimate of real Gross Domestic Product and the quarterly estimate of real Gross Domestic Income, both produced by the Bureau of Economic Analysis.  In concept, the two should be the same, because sales of products generate income for producers and workers equal to the value of the sales.  However, because the measurement on the product and income sides proceeds somewhat independently, the two actual measures differ by a statistical discrepancy. The product-side estimates fell slightly in 2007Q4, rose slightly in 2008Q1, rose again in 2008Q2, and fell slightly in 2008Q3. The income-side estimates reached their peak in 2007Q3, fell slightly in 2007Q4 and 2008Q1, rose slightly in 2008Q2 to a level below its peak in 2007Q3, and fell again in 2008Q3. Thus, the currently available estimates of quarterly aggregate real domestic production do not speak clearly about the date of a peak in activity.

Other series considered by the committee—including real personal income less transfer payments, real manufacturing and wholesale-retail trade sales, industrial production, and employment estimates based on the household survey—all reached peaks between November 2007 and June 2008.

The committee determined that the decline in economic activity in 2008 met the standard for a recession, as set forth in the second paragraph of this document.  All evidence other than the ambiguous movements of the quarterly product-side measure of domestic production confirmed that conclusion. Many of these indicators, including monthly data on the largest component of GDP, consumption, have declined sharply in recent months.

The committee’s primary role is to maintain a monthly chronology of the business cycle.  For this purpose, the committee mainly relies on monthly indicators. It also considers quarterly indicators and maintains a quarterly chronology. In its deliberations, the committee relied on a number of monthly and quarterly economic indicators published by government agencies. The Appendix to this announcement lists these indicators and their sources.  The Appendix also describes the calculations required to reproduce the series that the NBER committee examined in its deliberations.

http://www.nber.org/

 

US Business Cycle Expansions and Contractions ¹

Contractions (recessions) start at the peak of a business cycle and end at the trough.

–>
November 2001 (IV)
 

BUSINESS CYCLE REFERENCE DATES		DURATION IN MONTHS
Peak	Trough	Contraction	Expansion	Cycle
Quarterly dates are in parentheses		Peak to Trough	Previous trough to this peak	Trough from Previous Trough	Peak from Previous Peak
June 1857(II)October 1860(III)April 1865(I)June 1869(II)October 1873(III) March 1882(I) March 1887(II) July 1890(III) January 1893(I) December 1895(IV) June 1899(III) September 1902(IV) May 1907(II) January 1910(I) January 1913(I) August 1918(III) January 1920(I) May 1923(II) October 1926(III) August 1929(III) May 1937(II) February 1945(I) November 1948(IV) July 1953(II) August 1957(III) April 1960(II) December 1969(IV) November 1973(IV) January 1980(I) July 1981(III) July 1990(III) March 2001(I) December 2007 (IV)	December 1854 (IV)December 1858 (IV)June 1861 (III)December 1867 (I)December 1870 (IV)March 1879 (I) May 1885 (II) April 1888 (I) May 1891 (II) June 1894 (II) June 1897 (II) December 1900 (IV) August 1904 (III) June 1908 (II) January 1912 (IV) December 1914 (IV) March 1919 (I) July 1921 (III) July 1924 (III) November 1927 (IV) March 1933 (I) June 1938 (II) October 1945 (IV) October 1949 (IV) May 1954 (II) April 1958 (II) February 1961 (I) November 1970 (IV) March 1975 (I) July 1980 (III) November 1982 (IV) March 1991(I) <!–November 2001 (IV)	–188321865 38 13 10 17 18 18 23 13 24 23 7 18 14 13 43 13 8 11 10 8 10 11 16 6 16 8 8	–3022461834 36 22 27 20 18 24 21 33 19 12 44 10 22 27 21 50 80 37 45 39 24 106 36 58 12 92 120 73	–4830783699 74 35 37 37 36 42 44 46 43 35 51 28 36 40 64 63 88 48 55 47 34 117 52 64 28 100 128	—-40545052 101 60 40 30 35 42 39 56 32 36 67 17 40 41 34 93 93 45 56 49 32 116 47 74 18 108 128 81
Average, all cycles:1854-2001 (32 cycles)1854-1919 (16 cycles)1919-1945 (6 cycles)1945-2001 (10 cycles)		17221810	38273557	55485367	56*  49**5367
* 31 cycles** 15 cycles

Source: NBER 

The NBER does not define a recession in terms of two consecutive quarters of decline in real GDP. Rather, a recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. For more information, see the latest announcement from the NBER’s Business Cycle Dating Committee, dated 12/01/08. <!–The NBER does not define a recession in terms of two consecutive quarters of decline in real GNP. Rather, a recession is a period of significant decline in total output, income, employment, and trade, usually lasting from six months to a year, and marked by widespread contractions in many sectors of the economy.

A growth recession is a recurring period of slow growth in total output, income, employment, and trade, usually lasting a year or more. A growth recession may encompass a recession, in which case the slowdown usually begins before the recession starts, but ends at about the same time. Slowdowns also may occur without recession, in which case the economy continues to grow, but at a pace significantly below its long-run growth

A depression is a recession that is major in both scale and duration. Further discussion of these concepts can be found in the NBER book, Business Cycles, Inflation and Forecasting, 2nd edition, by Geoffrey H. Moore, 1983, Ballinger Publishing Co., Cambridge, MA. 

http://www.nber.org/cycles.html

 

Determination of the December 2007 Peak in Economic Activity

 

“…FAQs 

 

Q: The financial press often states the definition of a recession as two consecutive quarters

of decline in real GDP. How does that relate to the NBER’s recession dating procedure?

A: Most of the recessions identified by our procedures do consist of two or more quarters of 

declining real GDP, but not all of them. As an example, the last recession, in 2001, did not

include two consecutive quarters of decline. As of the date of the committee’s meeting, the

economy had not yet experienced two consecutive quarters of decline.

 

Q: Why doesn’t the committee accept the two-quarter definition? 

A: The committee’s procedure for identifying turning points differs from the two-quarter rule in

a number of ways. First, we do not identify economic activity solely with real GDP, but use a

range of indicators. Second, we place considerable emphasis on monthly indicators in arriving at

a monthly chronology. Third, we consider the depth of the decline in economic activity. Recall

that our definition includes the phrase, “a significant decline in activity.” Fourth, in examining

the behavior of domestic production, we consider not only the conventional product-side GDP

estimates, but also the conceptually equivalent income-side GDI estimates. The differences

between these two sets of estimates were particularly evident in 2007 and 2008. …”

 

http://mirror.nber.org/dec2008.pdf

 

Capital gains tax in the United States

“In the United States, individuals and corporations pay income tax on the net total of all their capital gains just as they do on other sorts of income. Capital gains are generally taxed at a preferential rate in comparison to ordinary income. This is intended to provide incentives for investors to make capital investments and to fund entrepreneurial activity. The amount an investor is taxed depends on both his or her tax bracket, and the amount of time the investment was held before being sold. Short-term capital gains are taxed at the investor’s ordinary income tax rate, and are defined as investments held for a year or less before being sold. Long-term capital gains, which apply to assets held for more than one year, are taxed at a lower rate than short-term gains. In 2003, this rate was reduced to 15%, and to 5% for individuals in the lowest two income tax brackets. These reduced tax rates were passed with a sunset provision and are effective through 2011; if they are not extended before that time, they will expire and revert to the rates in effect before 2003, which were generally 20%.

The reduced 15% tax rate on eligible dividends and capital gains, previously scheduled to expire in 2008, was extended through 2010 as a result of the Tax Reconciliation Act signed into law by President George W. Bush on May 17, 2006. As a result:

• In 2008, 2009, and 2010, the tax rate on eligible dividends and long term capital gains is 0% for those in the 10% and 15% income tax brackets.

• After 2010, dividends will be taxed at the taxpayer’s ordinary income tax rate, regardless of his or her tax bracket.

• After 2010, the long-term capital gains tax rate will be 20% (10% for taxpayers in the 15% tax bracket).

• After 2010, the qualified five-year 18% capital gains rate (8% for taxpayers in the 15% tax bracket) will be reinstated.

Technically, a “cost basis” is used, rather than the simple purchase price, to determine the taxable amount of the gain. The cost basis is the original purchase price, adjusted for various things including additional improvements or investments, taxes paid on dividends, certain fees, and depreciation.

The United States is unlike other countries in that its citizens are subject to U.S. tax on their worldwide income no matter where in the world they reside. U.S. citizens therefore find it difficult to take advantage of personal tax havens. Although there are some offshore bank accounts that advertise as tax havens, U.S. law requires reporting of income from those accounts and failure to do so constitutes tax evasion. …”

http://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States 

 

Mises and Austrian Economics: A Personal View

 

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