The visible hand in economics

A world scared of recession

Posted on: January 29, 2008

I was just looking at the economics chat meter at 26 econ and noticed this interesting graph:
recession.png

The graph shows the frequency of use of the word ‘recession’ in blog posts since the 2nd of August – a few days after the subprime mortgage market woes began to drag on market confidence.ย  January has been a ripper of a month for recession talk, with the US Fed cutting rates in a move that smells of panic, and the US government attempting to push through ‘stimulatory packages’.

The world seems scared of recession, should New Zealand be?

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5 Responses to "A world scared of recession"

One word answer: no. ๐Ÿ™‚

I thought you never worried about business cycles.

“I thought you never worried about business cycles.”

Contrary to popular opinion I am not a Real Business Cycle zealot ๐Ÿ™‚

However, I guess I am less concerned about recessions than your average person. Maybe I am less loss averse than other people?

“One word answer: no. :-)”

I completely agree with you. However I have to ask, why?

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It’s your blog, you should go first.

But in a nutshell, the chain of events we have to fear is long and complex: US recession -> World recession -> NZ recession. Probability is low.

NZ is buffered by high commodity prices, big fiscal stimulus on the way, and the labour market is pretty tight. Even in a growth slowdown I wouldn’t expect unemployment to rise much. And I don’t expect recessions to last long anywhere with modern monetary policy.

Biggest threat to NZ is housing market collapse. Likely trigger for that is mass emigration (not currently a problem) or big increase in mortgage rates. Global recession, with its likely impact of lower world bond rates and lower tradable inflation, makes me less fearful of mortgage rate increases.

So I’m not losing sleep.

NO, and I still have doubts that the US will record a recession…1 Qtr maybe but not 2 Qtrs negative.

All this talk about US mortgages being repriced higher…taken a look at the 2, 5 and 10 year US swaps lately? They got in a mess by lending cheap money….gee look, now they can do it again!

As for the rest , CPW is on the money.

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