« back to Today's Commentary

Recovery Hardly In Sight
-- November 26, 2001

The National Bureau of Economic Research declared today that the US economy has been in a recession for the past eight months. But contrary to popular -- and the Bush Administration's -- belief, an economic recovery is nowhere in sight. In fact, the economy may be heading for more trouble in the months ahead. And that trouble is spelled DEFLATION.

The first wave of deflation is already lapping at US shores. No one commenting on deflation today was alive during the last wave of deflation to hit America. They have no idea how it can turn the world inside out and upside down. Deflation wreaks havoc in any economy that is riddled with debt, as America's economy is today. And yet some people, completely misunderstanding its potential power, are actually celebrating its arrival. They are in for a rude awakening as deflation drives the value of all assets downward.

At the same time, the world's economies are facing downturns: East Asian economies are shrinking in the second half of this year, led by Japan's deepening economic crisis. Mexico and Canada followed the United States into recession, and their woes have spread to Argentina and Brazil. Some economists say Germany's worsening performance -- its economy slipped into reverse in the third quarter -- will drag most of Europe into negative territory.

"One by one, every major country is tipping into a rare and possibly lethal recession," said Stephen Roach, chief global economist at Morgan Stanley in New York, who has been predicting a worldwide slump since early in the year. "It is far-reaching and deep ..." And it is driven by an unstoppable force -- worldwide deflation.

Huge, overwhelming debts! World deflation seeping into the American economy! World economies sinking in unison! Are these the ingredients of an economic recovery? No, of course not. Cleary, the Bush Administration is whistling in the dark when it predicts a quick recovery. Even Herbert Hoover's forecasts of "a recovery around the corner" in the early days of America's greatest depression seem to have more basis in reality.

related article: Recession Under Way, May Be Short-Lived