I find it interesting that of a panel of eleven illustrious academic and financial market economists and CEOs, not one opined that we should not be looking at historical precedents of recessions to make predictions regarding the end of the current one. Fact is that we are now in a "New Recessionary Equilibrium" (NRE) that is defined by the "New Growth Equilibrium" (NGE) we found ourselves in from the late 1990's until the fourth quarter of 2007. The N in NGE and NRE stands for, figuratively, explosive leveraging and explosive deleveraging, respectively. Never in our history of booms and busts have we had the phenomenon of explosive leverage being the main catalyst neither for growth nor, in continuum, explosive deleveraging being the main catalyst for a steep recession. Given this fact, why is the illustrious panel looking at history to predict the end of our NRE? History has explanatory power but, in general and in this instance in particular, it does not have predictive power.
We need to analyze if current asset prices in fact reflect the massive deleveraging that has taken place-- my suspicion is the answer is a "no". If I am right, then we have a period of further declines in asset prices and contraction ahead of us. Any meaningful prediction of an end to this recession will have to analyze the trajectory of asset price bubbles commensurate with the explosion in leverage that started in the late 1990's and correlate that trajectory with asset price declines commensurate with the massive deleveraging that started somewhat benignly in the fourth quarter of 2007 and became precipitous in the third quarter of 2008. Only then can we start having a meaningful discussion of "when will the recession be over?”.
LINK to Above-Referenced Op-Ed Article:
http://www.nytimes.com/2009/03/01/opinion/01endintro.html?ref=opinion
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