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W or V Economic Bottom?

 
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PostPosted: Sun Jul 27, 2008 11:45 pm    Post subject: W or V Economic Bottom? Reply with quote

The U.S. economic expansion that began in 2001 continues. There hasn't been two consecutive quarters of contraction, at least so far in 2008. The U.S. economy is either in the rising middle part of a W, with the worst yet to come, or began a V-shaped recovery, with the worst over.

I believe, it depends on export-led economies, i.e. whether they'll continue to expand strongly, expand at slower rates, or contract suddenly. Expanding at slower rates is the best outcome, because that will give time for supply and demand of raw materials and energy to equilize without prices rising further, along with correcting other global imbalances slowly. However, if export-led economies continue to overproduce by large margins, commodity prices will rise, fueling inflation. If export-led economies contract suddenly, U.S. export-growth will slow, perhaps enough to cause U.S. real GDP to contract.

The U.S. has never had a 10 year expansion without a recession. The Fed achieved a soft-landing in 1994-95 (after the 1993 tax hike and government health scare). Consequently, the 1991-2001 expansion was the longest in U.S. history. The second longest expansion was from 1982-90. So, the Fed has been more successful smoothing-out business cycles. However, based on historical data, a recession is likely before 2012.
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