The R Word

Post Image Every morning on the way to work I listen to podcasts. Usually I listen to the NYTimes Front Page, and BBC’s Global News. Lately, both have been talking quite a bit about "the R word". So has the rest of the press (see the R-word index). I’m no economist, but it seems to me that the USA is not bracing for a recession, they’re already in one. And that in turn has affected the rest of the world.

The media coverage of the recession has understandably increased this week, with world financial leaders meeting in Davos for the annual World Economic Forum. A couple quotes from those leaders in this article at the International Herald Tribute caught my eye:

George Soros, the financier who made a fortune betting against the pound, went so far Wednesday as to say that the downturn would put an end to the long status of the dollar as the world’s default currency.

"The current crisis is not only the bust that follows the housing boom," Soros said. "It’s basically the end of a 60-year period of continuing credit expansion based on the dollar as the reserve currency."

And on the completely opposite end of the spectrum:

Not everybody was grim. John Snow, the former Treasury Secretary and chairman of Cerberus Capital Management, said that if the United States slipped into recession, it would be "short and shallow."

"That’s been the pattern of recessions in the U.S., and there’s a reason for it," he said in an interview. "There is an inherent resilience in the U.S. economy. We’re already seeing an adjustment."

So which is it? Is the United States losing its status as the world’s top economy, the so-called "default" currency? Or is this just a temporary blip that won’t shake things up too much, the normal ebb and flow of the markets?

My money is on the latter. The economy follows a pattern of expansion and contraction, and perhaps it is time for another contraction. And Snow is right, with the US at least, periods of contraction are historically much shorter than periods of expansion.

You can read more about recession at Wikipedia.

Read: I.H.T.

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