Are we heading for another recession?

recession Pictures, Images and Photos
Every day now, more and more people and experts are saying that another recession is coming or may already be here. Since a recession is a technical term with various definitions, it makes officially declaring a recession a cloudy decision. Also, since it is a technical term it’s dependant on indicators from the economy, all of which are not in real time and are sometimes delayed by several months.

Although I cannot say whether a double dip recession is coming right now, I can say that if we do enter another recession it won’t be as bad as the one a few years ago. One reason I say this is because some of the structural elements of the economy that were weak or in a bubble in the last recession are either near their bottom or have strengthened since then. Banks have had to increase the amount of reserve capital they hold which reduces the chances that they will need to be bailed out by the government. Home prices are already very low and frankly I don’t think they can go that much lower. In addition, many large businesses have already made their job cuts and are leaner with less waste due to the last recession so they are generally in better shape.

The final reason why the economy is better now even if we go into another recession than it was in 2008 is because companies are sitting on about $1 trillion of cash waiting to invest it. The reason they haven’t touched it is because of uncertainty caused by the U.S. government (Republicans deserve a lot of the blame for that). Once government policies are made clear and make sense, these companies will put this cash into hiring and investing.

I don’t know if we are about to see another recession. However, if we do, there is a better chance that we will see and strong recovery which is what we didn’t see after the last recession. In a weird way, perhaps what the economy needs is another kick in the butt to get it moving again.