The Current Recession: More Than Just ‘Average’

Since 1854, the average length of a U.S. recession has been 17 months from peak to trough, according to the National Bureau of Economic Research. That doesn’t tell the whole story, however. Over those 15 decades, the shortest downturn lasted for seven months, while the longest, from October 1973 to March 1879, was 65 months long (the Great Depression actually came in second at 43 months).

Given what got us here this time around — including the bursting of the biggest credit and real estate bubbles in history — and the fact that many economic indicators were already in pretty poor shape before the bottom fell out, is it realistic to assume that the current downturn will just be “average” (i.e., last only four more months)?

I don’t think so. And neither does Robert Shiller, the author or the prescient bestseller Irrational Exuberance, who explains his less-than-upbeat rationale in a British Times article entitled “Leading Economist Fears Decade of Weakness in US.”

The collapse of the American property market helped to start the downturn

One of the world’s leading economists has given warning that the United States is facing a decade of financial misery, with the number of unemployed Americans set to continue to rise for years.

Robert Shiller, Professor of Economics at Yale University, who predicted the end of the internet bubble seven years ago, said: “We could have many years of a very weak economy. Big recessions are followed by years of weakness and typically unemployment keeps rising.

“To say that this will last years is not a dramatic statement. What is happening now is much worse than 1990. We could be facing a decade of real weakness.

“This is no ordinary recession. There are signs that people see this as a different story. People are talking about a depression, something that we haven’t seen previously.”

Professor Shiller’s comments come as the unemployment rate in America is rising astonishingly fast.

Last week official figures showed that the US lost 524,000 jobs in December, with the overall unemployment rate rising to 7.2 per cent - the highest level for 16 years.

With about 11.1 million people out of a job, the total number of unemployed is about 50 per cent higher than a year ago.

Some economists, such as Kenneth Rogoff, the former chief economist at the International Monetary Fund and now a Professor of Economics at Harvard University, believe that America will be lucky if unemployment peaks at 9 per cent of the workforce and that there is a high chance that it will reach at least 10 per cent.

Professor Shiller, who said that he has talked to the incoming Obama Administration about possible solutions to the housing crisis in the US, took a swipe at the Federal Reserve.

He said: “This recession is by no means mechanical. People have lost a sense of confidence, a sense of trust in institutions and in each other. It is very hard for a central bank to address that by just cutting interest rates.”

Professor Shiller, who has recently published The Subprime Solution - How Today’s Global Financial Crisis Happened, and What to Do About It, also warned that plans to try to limit foreclosures had met with resistance from those who felt “they had paid their mortgages, they had done everything right, but that they are now being taxed for those who did not”.

The housing market in the United States is widely seen as one of the main causes of its economic troubles.

Spurred by low interest rates and initiatives to promote home ownership, residential real estate boomed for a decade.

Professor Shiller, who co-founded the authoritative S&P Case/Shiller home price index, was one of the first to predict that the housing market would slump and that this could bring down financial institutions.

He said: “So far the Government isn’t doing much. [President-elect Barack] Obama has not made any announcement. They do not have anything going. I would have thought that Obama would be receptive [to a rescue plan to stem the rate of foreclosures].”

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