JUST WHAT IS A RECESSION ANYWAY?

Yesterday George Bush assured the nation that we were not heading into a recession. Federal Reserve Chairman Ben Bernanke echoed the same sentiments. They blame the media for overplaying the news of high costs, slowing growth and low consumer confidence. So, amid all of this banter and posturing, just what is a recession, are we heading into one, and if so, what difference does it make? The standard definition of a recession is two consecutive calendar quarters of negative growth in the overall U.S. economy. The first quarter of 2008 is two-thirds over, and we might squeak by with a tiny bit of growth. The second quarter, then, will be the telling time: if our economy shrinks between April 1 and June 30, the "R" word could indeed be not far away. What factors will influence the growth or shrinkage of the economy? George Bush feels that the tax rebate, The Stimulus---which will put $300 to $600 in many people's pockets, and as much as $1,200 in others---will get the economic engines purring again. That money won't be in hand until May, and it won't all get put to use until June or July. A huge amount of it will just be used to pay off back debts, which won't get the economic engines to whimper, let alone purr. As I read the nation's mood, George Bush's enthusiasm will count for naught. So there go the only two positive factors that could prevent or delay a recession. NEGATIVES OUTWEIGH POSITIVES On the negative side we have the following: A) Higher gas prices, which are felt in almost every economic transaction---not just at the pump, but also in delivering raw materials to factories andfinished products to stores, and much more. Those higher prices will cause people to cut back on other spending. B) Tight credit, which will remain with us for months even if the Fed cuts short term rates at its March meeting, as is expected, will curtail new investments in production. Less production and less to buy as a result are economic negatives. C) The weak dollar will cause the prices of goods we import to go up, which dampens growth. D) All of the above will start to cause layoffs, which means less people buying fewer goods. E) Layoffs plus rising prices sours the mood of the public, and people start stashing money away for a rainy day instead of spending it. A + B + C + D + E equals recession, no matter how you or George Bush defines it. What difference does it make? Not a whole lot, over time. We've been this route many times, and we've always bounced back, usually within a year or two. Yes, there will be some short term pain. Yes, the "R" word will get over-used during the elections, with fingers of blame pointing in all directions, until the public begins to ignore it. Yes, a change in the Administration will prompt changes in the national mood---new brooms always do sweep clean, regardless of what they're made of. Yes, we will awake from a hibernation of slow and/or negative growth and get moving again. And, like childbirth (or so I'm told) we will quickly forget the pain. The biggest thrust of economic growth comes from consumer confidence. Regardless of interest rates or gas prices or credit tightness, will we regain confidence in our economic potential? Yes, but denial---such as that coming out of Washington---only serves to confuse the public and delay the misery. Let's face facts---tell the public the truth, and get on with it. Mr. and Mrs. John Q. know a lot more about their sense of confidence than any politician can ever know. And any politician who tells you otherwise is just.....well....a politician. This article supplements Chapter One, pages 16-26 in Personal Finance. Access the text by clicking on the red box in the right column.