Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Who's Afraid of Recession?


Fed's efforts to obscure truth just plain scary.

I must not fear.
Fear is the mind-killer.
Fear is the little-death that brings total obliteration.
I will face my fear.
I will permit it to pass over me and through me.
And when it has gone past I will turn the inner eye to see its path.
Where the fear has gone there will be nothing.
Only I will remain.

- The Bene Gesserit Litany Against Fear, Dune

We're taught from an early age how to deal with fear. We're told to face it, respect it, overcome it, lest it overcome us instead. Deny it, ignore it, push it away, or it will consume you.

Still, despite such a seemingly clear roadmap on how to deal with things that go bump in the night, the powers that be continue to fudge economic data. They adamantly declare we're not in a recession, even when all reasonable information indicates otherwise.

Last Thursday, the Commerce Department quietly revised statistics on the U.S. economy: Rather than expanding, as the government had previously claimed, the economy shrank at the end of last year. The following day, the Bureau of Labor Statistics released its faulty employment numbers, using the cryptic birth-death model to magically create jobs out of thin air.

But what's so terrifying about the word "recession"? It's not possible to intelligently tackle problems if we don't know what they are, so why this herculean effort to obscure the truth?

Recessions cleanse the economy, purging its excesses -- Countrywide, Bear Stearns -- as well as products that shouldn't have been dreamt up in the first place (CDO-squareds, the pet rock). Inventory levels shrink, growth is reined in, and the whirring economic machine takes a well-deserved pit stop.

They're usually short (recessions rarely last more than a year); growth then resumes at its normal rate. Risk management goes out the window, lenders loosen up and maverick CEOs expand into all corners of the globe until, ultimately, we have another recession. Lather, rinse, repeat.

The true fear caused by impending recessions isn't diminished growth or an uptick in the unemployment rate; we know how to deal with that stuff. What keeps government officials up at night and drives them to statistical perjury is fear of the unknown.

The most worrisome aspect of recessions -- and this recession in particular -- is what might happen.

What if China's economy slows down too. What if more banks go under. What if home prices keep falling. What if oil keeps going up. What if the Dream Team actually wins a gold medal.

For all their obfuscation before the credit crisis began, it's unlikely that Federal Reserve Chairman Bernanke or Treasury Secretary Paulson would have predicted credit losses approaching half a trillion dollars just one year into the malaise - even if they'd been given a military-grade truth serum. They probably wouldn't have imagined they'd backstop JPMorgan Chase (JPM) to the tune of $29 billion (in order to save Bear Stearns), or be forced to bail out Fannie Mae (FNM) and Freddie Mac (FRE).

But now, given the extremes to which they've been willing to go in order to prop up a faltering financial system, and indeed an economy, badly in need of some time to lick its wounds, there's one thing to be truly fearful of: What are they afraid of that they're not telling us about?
< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opin= =3D =3D3D ion about the performance of securities and financial markets by = the wr=3D iter=3D3D s whose articles appear on the site. The views expresse= d by the wri=3D ters are=3D3D not necessarily the views of Minyanville Medi= a, Inc. or members=3D of its man=3D3D agement. Nothing contained on the web= site is intended to con=3D stitute a recom=3D3D mendation or advice address= ed to an individual investor =3D or category of inve=3D3D stors to purchase= , sell or hold any security, or to =3D take any action with re=3D3D spect t= o the prospective movement of the securit=3D ies markets or to solicit t=3D= 3D he purchase or sale of any security. Any inv=3D estment decisions must b= e made =3D3D by the reader either individually or in =3D consultation with = his or her invest=3D3D ment professional. Minyanville write=3D rs and staff= may trade or hold position=3D3D s in securities that are discuss=3D ed in = articles appearing on the website. Wr=3D3D iters of articles are requir=3D = ed to disclose whether they have a position in =3D3D any stock or fund disc= us=3D sed in an article, but are not permitted to disclos=3D3D e the size o= r direct=3D ion of the position. Nothing on this website is intende=3D3D d = to solicit bus=3D iness of any kind for a writer's business or fund. Mi= ny=3D3D anville mana=3D gement and staff as well as contributing writers wi= ll not respo=3D3D nd to em=3D ails or other communications requesting inves= tment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos