There is a lot of talk about recession at the moment.

There is a general understanding recessions are bad, but what does it actually mean to be in a recession and how does this affect the average consumer? The definition of a recession is negative economic growth for two consecutive quarters. This means a fall in Real GDP, - lower National income and lower National Output. However, it is worth noting some people talk of a recession, even when growth is very low. A recession is characterised by:

Rising unemployment (often unemployment is a delayed factor) i.e. it takes time for unemployment to rise, but, even when the economy is recovering, it takes time for unemployment to fall. Rising Government Borrowing. A recession is bad news for the government budget. A recession leads to lower tax revenues (lower income tax and corporation tax revenues) and higher government spending on unemployment benefits. The UK is forecast to borrow 60 billion, a recession could make this borrowing even worse in 2009. This borrowing means higher taxes and higher interest payments in the future. Falling Share Prices. Generally a recession leads to lower profitability and lower dividends. Therefore, shares are less attractive. Note share prices often fall in anticipation of a recession. e.g. the recent falls in share prices are largely because the market expects a recession soon. During the actual recession, share prices often increase in anticipation of the economy recovering. Note also, falling share prices don't always mean a recession, falling share prices can occur for many other reasons. Lower Inflation. Typically a recession reduces demand and wage inflation. This should result in a lower inflation rate. However, this recession is complicated because of rising oil prices. Therefore, the forthcoming recession may actually occur simultaneously with higher inflation - a term known as stagflation. But, a recession will definitely reduce demand pull inflation pressures and encourages price wars on the high street as firms seek to retain consumers. Falling investment. Investment is much more volatile than economic growth. Even a slowdown in the growth rate (economy expanding at a slower rate) can lead to a significant fall in investment.

that has occurred in the United States.

Click here to see how we predicted the current recession!

The 1980s Recession was a severe recession for the United States that began in July, 1981, and technically ended in November of the next year. Although there are many causes for this recession, the primary cause for this was the lack of good government policies. This nation had just re-emerged from two consecutive recessions (1973 Oil Crisis and 1979 Energy Crisis) and the results were staggering. Unemployment had risen from 4.0% in 1974 to a high of 9.0% in May of 1975. Although unemployment had decreased as time went on, a mild recession, from January 1981 to July 1981, began the abrupt increase of both unemployment and inflation. Despite economic recoveries, unemployment remained at historically high levels, and life was not easy either. Inflation had risen drastically; by 1979, inflation had risen up to 7.9% and increased further to 13.5% by 1980. In order to prevent the further rise of inflation, Federal Reserve chairman Paul Volcker slowed the rate of growth of the money supply and raised interest rates. Thefederal funds rate, which was about 11% in 1979, rose to 20% by June 1981. Theprime interest rate, at the time a highly important economic measure, eventually reached 21.5% in June 1982 (Wikipedia.org). Banks were particularly hit by this recession. The Congress had just passed a bill that gave banks more freedom to lend money and phased out a number of the banks' investing restrictions. As a result, banks immediately poured their money into housing and real estate. Because of the instant freedom coupled with extremely high interest rates, the number of bank failures increased drastically. Although the recession technically ended in November, 1982, banks continued to fail until two years later. In 1983, 49 banks had failed (compared to the 43 bank s that had failed during 1940). By the end of 1982, the Federal Deposit Insurance Corporation (FDIC) was coerced to invest $870 million into bad loans just to keep certain banks afloat. The biggest impact on American economy, though, was the failure of the nation's seventh-largest bank: Continental Illinois Bank and Trust Company. With $45 billion in assets, members of Congress and the press thought that the bank was too big to fail. However, the FDIC was long aware of the financial troubles that this bank faced. Its partner bank, Penn Square Bank, had collapsed, and it was only a matter of time until it too would fail. In 1984, federal regulators were forced to pay $4.5 billion in an effort to rescue the bank. If the government had in fact allowed the bank to fail, some economists believe that banks like Bank of America, Citicorp, and others would soon follow. Agriculture was hit as well; farmers saw a perennial decrease in agricultural exports, and many farmers saw crops being abandoned for lack of money to support them. Efforts to Heal Much was done by the then-new president, Ronald Reagan, to heal the wound on our economy. Reagan based his theory of supply-side economics, which advocated reducing tax rates so people could keep more of what they earned. The theory was that lower tax rates would induce people to work harder and longer (About.com). Although most economists believe that these tax-cuts were aimed at providing more benefits to the wealthy, the theory argues that higher investment would indirectly lead to more job creations and higher pay. However, much political fighting was present during this recession. Reagan believed that our nation's government was too big for its own good. While Reagan worked to cut taxes, he also slashed funding for many social programs and advocated the reduction of government regulations that regulated the workplace and the consumer. However, Reagan thought that the military had long been neglected after the Vietnam War, and he thus supported shoring up on defenses. However, his plans did not produce the results that many Americans wanted to see. With the couple of

tax cuts and an extraordinary increase in military funding, the government saw its national deficit rise from $760 billion in 1980 to $2100 billion by 1986. If fell back to $1500 billion by 1987, a remarkable feat by any president. Because of the instant results of these efforts, the approval rates of Ronald Reagan dropped as low as 35%, close to Jimmy Carter's in the worst of times. Richard Nixon still holds the record for the lowest approval rate of any president. In 1983, Reagan's approval ratings skyrocketed when recovery from this recession was inevitable. Recovery According to Wikipedia, a combination of deficit spending and the lowering of interest rates slowly led to economic recovery. From a high of 10.8% in December 1982, unemployment gradually improved until it fell to 7.2% (Wikipedia.org). Corporate earnings rose by a huge margin (29%, to be exact) in the third quarter of 1983, and inflation fell from 10% to 3.2%. Although no one accedes that this recession tested our nation's economic perseverance the most, economists can certainly attest to the statement that this was the hardest recession to live through since the Great Depression. Because banks were closed, money was literally thrown away, and most people lived on previous earnings made before the 1980s.

Indicator

Lets go to the data. Here are five data points that back up Achuthans claim that we are already in a recession: 1. Factory output is slumping. The manufacturing index of the Institute for Supply Management dipped in June to 49.7. Any figure below 50 means the sector is shrinking. It was the first sub-50 reading in nearly three years. 2. Consistent with the ISMs measure, industrial production dipped slightly in May from April. 3. In the Philadelphia Feds June survey of manufacturers in its region, nearly 40 percent reported declines in activity. It was the second month in a row in which respondents down thumbs outnumbered the up thumbs. 4. While gross domestic product rose in the first half, its not a strong indicator of where things are headed. After all, GDP grew in the last quarter of 2007, even though the worst recession since World War II began in December of that quarter. 5. Consumers are still glum. Bloombergs weekly Consumer Comfort Index, despite an upward blip earlier this year, is still at levels seen early

in the 2007-09 recession. Which means consumer spending is unlikely to lead the economy out of the slump.