Saturday, November 24, 2007

The Stealth Recession

Today's post is an economic idea I have had. Its nothing terribly fancy in fact its rather simple. I got this idea from the criticism of Alan Greenspan and the Federal Reserve keeping interest rates so low for several years from 2001-2005 that when inflation was taken into account real interest rates were actually negative.

So here it goes. The federal reserve, supposedly in a move to be more transparent, released and internal study forecasting that the economy would slow to as slow as a 1.6% GDP. However, this federal reserve is well known for always focusing on so called "core" inflation which excludes energy and housing costs among other thing. But obviously energy and housing prices affect the consumer's standard of living heavily. So essentially if the difference between "core" inflation and say an inflation figure including energy and housing is more than 1.6% than a fair measure of the GDP during the forecasted time would actually be zero or less ( i.e. a recession).

So I hereby coin the term the "stealth recession." To me its a recession wherein a true GDP is negative while the nominal ones, and the so called real ones which utilize "core" inflation show a positive gain. If the fed's real GDP ( nominal GDP - core inflation) forecast is 1.6% but say the so called non-core inflation is closer to 6% than a true of fair measure of real GDP would be closer to -4.5%.

I theorize that we have had stealth recessions before. That is why the economic figures are always touted as being okay or good and then anecdotally through the media we hear stories of how consumers still seem to be suffering or not feeling as though things are improving on their end.

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