By Tyler Durden
Authored by Lakshman Achuthan and Anirvan Banerj via Bloomberg.com,
Two things bear most of the blame: external shocks and economic volatility.
The U.S. managed to avoid recession after the financial crisis, but Japan has succumbed to three contractions since 2009. Economic volatility is a key reason for this divergence, and that tells us a great deal about the risk of future U.S. recessions.
During this decade, both the U.S. and Japan have experienced multiple growth rate cycles, which consist of alternating periods of rising and falling economic growth. Japan had four growth rate cycle (GRC) downturns, three of which turned into recessions; the U.S. experienced three GRC downturns, none of which were recessionary. Why not?
In 2011, a Federal Reserve paper estimated the U.S. economy’s “stall speed,” below which it would plunge into a recession. U.S. growth promptly dropped below that threshold, yet no recession followed. So the concept — which seemed to have worked quite well since the 1950s — broke down and dropped out of the discourse.
Specifically, that estimate of the economy’s stall speed was 2 percent two-quarter annualized growth in real gross domestic income. In theory, the GDI is equal to real GDP, but is measured differently. While GDP …read more