Democratic Underground

Depression Watch #5: Fat Bottomed Recessions
January 17, 2002
by Jerald Cumbus (JCMach1)

...Are you gonna take me home tonight
Ahhh down beside that red firelight
Are you gonna let it all hang out
Fat Bottomed Girls you make the rockin' world go round

— Queen
This week Commerce Secretary Donald Evans said of the current Recession that we are "a little closer to the end..."  For the first time in a long time, this columnist can agree with an official of the Bush administration about the state of the economy.  I would differ with the Secretary over the type of 'end' it is.

Stephen Roach of Morgan Stanley warned this week of the possibility of a Double Dip Recession.  "The last so-called "double-dip'' - or false-start recovery - occurred during the 1981-82 recession, when the economy grew for one quarter on two separate occasions, only to twice fall back into a contraction before pulling out of recession."  However, I believe that this recession will produce something similar:  a fat bottomed recession.  A fat bottomed recession differs from a double dip in that it forms two distinct bottoms (cheeks) of particular depth and length.  Between the two parts is a short rise forming the separation between the two halves.

Speaking of bottom heavy, Ford announced this week that it would cut 35,000 jobs and close 5 plants.  Also, they will eliminate complete lines such as the venerable Lincoln Continental and the Mercury Cougar.  During the 1990's because of their success in the van, truck, and SUV market, Ford did very little to forward innovation. Now, however, with increased competition from companies such as Honda which announced HEV version of the popular Civic. Another rival, Toyota also announced an HEV version of their popular Rav 4. Ford is facing stiff competition in the coming years.

Allen Greenspan also offered support for the fat bottomed recession theory when he stated in his first speech of the new year that he "sees significant risks that the recovery beginning may not endure." The only real hope which the Chairman of the Federal Reserve seemed to be offering was when he touted "the extraordinary pace of inventory liquidation as setting up the chance for production snapback." The setup is similar to "prior double-dips, consumer and business demand for goods fell just when manufacturers had succeeded in clearing inventory shelves and were gearing up for new production. The drop in demand prompted manufacturers to cut back on production again, sending the economy into a second downturn.""

As all of that were not cheeky enough, the Depression Watch Economic Depression Indicator changed very little and now rests at 61.45 (-0.08).  Not yet a Depression, but we have yet to hit bottom.

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