Study Notes on Recession

(1) I have been less than enthusiastic about an Obama presidency. But now, all I want to do is to pray and support Obama. President Obama is our only hope to get out of the current economic difficulties. The success of the economy and the country is far more important than the pride of one individual. A prospect of having a four year recession is daunting. Just thinking about it makes me sick.

On the opposite, I am also every hopeful. Why not? The earth has not been hit by another planet. We did not suffer a massive nuclear attack. We have not unexpectedly run out of mineral resources. All the problems are transactional which can be sorted out. On the financial markets, we need to figure out who has lost what amount and make those responsible recognize or pay for their losses. Then we may outlaw those unnatural financial deals and let the economy continue to run. The auto industry has to lower their overall cost structure. A tough job for sure. But the iron and steel industry has done it; the airline industry has done it. So will the automobile industry. All we need is a strong political consensus and will. Obama and his team have shown such guts.

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(2) After some self study, I am as confused as ever before on the cause of the current economic difficulties. All I can share is that the following folks were awarded with Nobel Prize on Economics on financial engineering related topics. I will leave the thinking to you, the readers of this page.

1997 - Robert C. Merton, Myron S. Scholes
"for a new method to determine the value of derivatives"
1994 - John C. Harsanyi, John F. Nash Jr., Reinhard Selten
"for their pioneering analysis of equilibria in the theory of non-cooperative games"
1990 - Harry M. Markowitz, Merton H. Miller, William F. Sharpe
"for their pioneering work in the theory of financial economics"

Source:http://nobelprize.org/

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(3) If history provides any clues, the current recession is already longer than most postwar downturns. How much longer will it run?

8/1929 – 3/1933 : 34 months
4/1960 – 2/1961 : 10 months
12/1969 – 11/1970 : 11 months
11/1973 – 3/1975 : 16 months
1/1980 – 7/1980 : 6 months
7/1981 – 5/1982 : 16 months
7/1990 – 3/1991 : 8 months
3/2001 – 11/2001 : 8 months
12/2007 - ?/? : 12 + ? months

Source: National Bureau of Economic Research
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(4) On the lighter side, let us have a small quiz.
What is the difference between a recession and a depression? Please choose the most appropriate one below.
(a) A recession is less a problem than a depression.
(b) A recession is about money and depression about headache.
(c) They are the same thing. Those two words may be used interchangeably.
(d) They are both about losing jobs, while the former is about your neighbor and the latter is about you yourself.

* Which ever you choose is the best answer because economics is a dynamic field.