Cullen Roche uses a nifty bar chart snatched from Deutsche Bank in musing about the recovery from the last recession and the prospects for the end of the recovery:
History may not be on the side of those calling for recession currently. According to recent data from Deutsche Bank the current expansion is still on the shorter end of the historical average length.
Since 1854 the average expansion has lasted 40 months. Since the great depression the average expansion has lasted 58 months. The last 7 expansion, however, have lasted almost 70 months on average. At month 27 the current expansion would be short by historical standards. Of course, if you’re following my balance sheet recession theory this is a relatively moot point, but if we’re going to following the standard NBER data points on recessions then this casts doubt on the odds of a technical recession occurring in the coming 12 months.
According to the NBER the present recovery has been going on for about 27 months, the shortest post-war recovery has been 12 months, the average length of post-war recoveries has been 59 months, and, by my reckoning, the median length of a recovery is 45 months. Deutsche Bank, noting that by the standards of other post-war recoveries the present recovery has been short says so what?
We think that the three ‘super-cycles’ between 1982-2007 were the exception rather than the norm and existed largely because of a near 30 year secular global decline in inflation that transcended the business cycle. This was perhaps caused by Globalisation and the reduction in cost pressures that it facilitated. We think that the Western authorities ‘maxed out’ on the benefits of this inflationary decline by pumping monetary and fiscal stimulus into their economies whenever they had an economic problem. Given the lack of inflationary pressures they had a rare ability to do this without the normal subsequent price rises
That was then and this is now. Note that since the American Civil War the average length of a recovery was 38 months and the median 30 months. If you think that since World War II everything has changed, that would incline you to believe that the recovery will last for several more years.
However, if you believe that the last several recoveries have been the exception rather than the norm a reversion to the prior trend might incline you to believe that the recovery is already over.
“Given the lack of inflationary pressures they had a rare ability to do this without the normal subsequent price rises.”
This amounts to yet another prediction that hyperinflation is right around the corner unless governments enact austerity. We’ve been hearing this prediction incessantly for years of course, but THIS TIME they say they have it right.
The United States for example has run deficits better than 80% of the time over the last two hundred years, sometimes greater (in GDP relative terms) than what we’ve seen since 1982. Their thinking is based on a primitive monetary model which states that printing money MUST create inflation; yet if we don’t see that inflation they come up with “maybes” and “we thinks” rather than taking a hard look at the model itself.
We’ve seen low inflation because aggregate demand has not kept pace with national income and because a lot of the spending being referenced was via monetary operations which had no channel into the real economy. Also the U.S. is overtaxed, which all by itself lowers demand by draining financial assets from the private sector.