It is important to know what the economy has in store so business can plan ahead; hire to expand or cut expenses, borrow money or payback loans, etc. We have had sustained economic growth for the last 6 years+. Some economists think that it’s time for another recession. This is based on the fact that something seems to upset the apple cart every 6 years since 1960, or 8 years since 1982. The 2 longest expansions have been 9 and 10 years. Opinions regarding another recession run from a 10% chance (by the Fed) and 25% (by JP Morgan) and by Bloomberg news predicted a 65% chance last year, though the stock market did fall due to lower oil prices, which was thought would to cause a recession (recession generally causes oil prices to decline, not the other way around). In fact no one knows what will really happen and these forecasts as good as a 10 day weather forecast.

Recessions can’t be timed like the old faithful. There are underlying factors that cause a recession and nothing lasts forever, sooner or later some events will precipitate a recession. Here are a few that have led to the recent few downturns: wild market speculation (like the dot.com/Y2K bubble and housing booms): raising interest rates and tight money; oil price changes; high unemployment; unfunded borrowing; defaulting on our debt: financial shenanigans; the failure of large financial institutions (S&L’s, investment banks like Lehman Brothers) as well as key industries like autos; etc.

High growth (5%+) eventually cause a recession like in 1981, 1990, 2001 and 2008 vs. a more sustainable growth of 2-2½ % which we are having now. Modest sustained growth would reduce the chance of a near term recession. But the conditions that led to the sub-prime mortgages and derivates recession has not fully been dealt with. And there are always new and unrecognized risks (purple squirrels), i.e. cyber and physical terrorism, war, political instability, natural disasters, etc.

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