Who Stands To Gain With Recession Denial?

August 26, 2008

The Facts

Since the third quarter of last year, talk of a recession has been on front burner for many in the business world, including some of the most notable economist in the nation. Officially, a recession hasn’t been declared, but for tens of millions of American working men and women, a recession is in full force. For the past three decades or so, a recession has not been officially declared until well after the recession ended and the economy recovered. So one has to ask why a recession isn’t acknowledged when we are in one.

My View

Many say the presence of a recession depends on who you are. On the lighter side of the analogy it is often said “if your neighbor loses his job, it’s a slowdown; but when you lose your job, it’s a recession”. But on the reality side, it depends on your financial status. If you are wealthy or well off financially, there is no recession; but if you are living from pay check to pay check, as the majority of Americans are, we are in a recession.

The state of the American economy has become a political tool. If the economy is good the White House administration at that time, and their supporters, are taking credit; but when we are in a recession, the administration denies it and just refers to it as a “slowdown”.

Robert Barbera of ITG was part of a discussion panel on CNBC this morning. In reference to his facial hair growth, he said “I’m not going to shave until they (Federal Open Market Committee-FOMC) stop pretending we are in an inflation growth and admit we are in a recession”. He points out that dealing with a recession will deal with the inflation problem. Steve Liesman of CNBC quoted Paul McCulley of PIMCO as calling the FOMC recession naysayers “inflation nutters”.

The FOMC is made up of experts that are supposed to be politically non-partisan. And although no reports can be found that suggest different, one has to wonder if partisan politics does not come into the picture. Why else would a recession not be acknowledged until months after a recession ended? And the answer is not “because there will be a negative reaction to the admission, thus sending the recession deeper”. (And don’t point me to the “official definition” of a recession; that doesn’t fly). If we, as a nation, are that close to financial failure (many say we are), then admission or not to our recession is of little help.

As I have pointed out before, no White House administration wants to admit to a recession on their watch. And when we are in the mist of a Presidential election, the risk is even higher. But we can’t “fix” a problem until we admit there is a problem; and the problem here is that we are deep into a recession. In the end, as it is with any denial of truth, the situation will only get worse.