RECESSION

1. Recession has often been defined as “Two consecutive quarters of economic decline”.

2. This definition dates back to 1974 in an article written by Julius Shiskin for New York Times. However he had attached few conditions, which were forgotten over a period of time.

3. This definition is incomplete without the conditions. In practice there are various organizations set up to decide whether the country is undergoing a recession. For example:

(a) United States. Business Cycle Dating Committee of National Bureau of Economic Research assesses the condition for extent of decline, duration of decline and the effect of decline.

(b) Japan. Economy Planning Agency takes into account 11 parameters to decide if recession has set in.

(c) Australia. The commission set up studies 52 indicators.

4. Though no two economists agree on any aspect of economy, the various schools do agree that economy is cyclical in nature. The traditional economy identifies following cycles:

(a) Agriculture Cycle. Less than a year to year at the most. Not so severe.

(b) Kitchin’s Inventory Cycle. This has a frequency of 3 – 5 years. Less significant today due to predominant service sector and Just In Time Inventory Management.

(c) Juglar Cycle (Investment Cycle). This repeats every 7 – 11 years. There are papers, which suggest that this is actually a 12 – year cycle.

(d) Kuznet’s Infrastructure Cycle. This repeats every 18 – 20 years.

(e) Kondratiev Cycle. This lasts for 48 – 60 years.

All cycles are measured from trough to trough.

5. The effect of Juglar cycle (which pertains to investments) is evident in the stock market pattern.

6. The world stabilized after the World War II some where around 1950s. Thereafter the events have followed a 12 year pattern:

(a) 1962 – Cuban Missile Crisis
(b) 1974 – Arab Oil Crisis. This was due to Western Support to Israel after the Yom Kippur War in which Egypt and Syria attacked Israel. This was followed by a severe retaliation by the Israelis.

(c) 1986 – US Tax Reforms, which led to the 1987 stock market crash.

(d) 1998 – The SE Asian Crisis that began in Jul 1997 reached a peak causing economy to tumble in the region.

7. In 2010, the first of Baby Boomers are waiting to retire. The effect on stock market is likely to be severe.

8. This also coincides with the fourth Kondratiev, which is expected to hit the bottom at that time. The other three are:

(a) 1787 to 1842 termed the Industrial Revolution Kondratiev

(b) 1843 to 1897 called the Bourgeois Kondratiev

(c) 1898 to 1950 named the Neo – Mercantilist Kondratiev

(d) 1950 to 2010 christened the fourth Kondratiev.

9. The third harmonic of Kuznets cycle also ebbs at the same time thereby explaining the sub – prime crisis.