Sweet 16

We are now officially in a recession (like it was a question before) and have been in one since December 2007 according to the National Bureau of Economic Research (NBER). Historically the average recession lasts for 16 months. Therefore, if this recession is average, the economy will turn around in four months. I don't think it takes an economist to determine that this recession will not be over in four months. Will it be over in 2009? Economists are trying to figure that out by comparing this recession to recessions like the ones in 1973-75 and 1981-82 recessions (both which lasted 16 months), or even the Great Depression (43 months long). Their results? Lots of well written papers, but no consensus among experts as to how long this recession will last. It seems that no one historical event is going to provide us with a clear road map of what is to come.

What economists are more certain of is that the rapid economic recovery (and stock market rally) that came after past recessions will be absent after this recession. Newly conservative financial institutions will hold back the recovery as they slowly improve their balance sheets and neglect to make the level of loans necessary to drive a spike in economic growth.

The actions of Congress, the Fed and the Treasury over the next 6 months will not only determine how long the recession lasts, but more importantly how quickly the economy turns around once it is over.