An alternative to popular faith

        Readers of this blog know debt growth is necessary for economic growth. The graphs and data in the various posts, for instance The federal debt and federal deficit are necessary for economic growth, show that surpluses preceded every depression in U.S. history, and reductions in debt growth preceded every recession in the past 50 years.
        While this degree of correspondence transcends coincidence, it leaves a troubling question: What is the trigger? The recession of 2001 was preceded by ten years of deficit growth reductions, while the recession of 2007 was preceded by only three. Other recessions also were preceded by varying periods of reduced deficit growth or surpluses. Similarly, the 1929 Great Depression was preceded by nine years of surpluses, while the 1819 depression was preceded by only two.
        This makes predicting a recession difficult. While running a surplus seems to be a fairly prompt causative agent for recessions or depressions, debt growth can decline for several years before a recession begins. Reduced deficit growth is a necessary detonator of recession or depression, but some other event must serve as a more immediate signal, a trigger. For example:

*The recession of 1960 may have been triggered by the Vietnam war, which began in 1959
*The 1970 recession: Possible trigger: Also may have been the Vietnam war, this time by the protests and the public realization the war was going poorly.
*The 1973 recession: Possible trigger: The first Arab oil embargo
*The 1980 recession: Possible trigger: The Iranian revolution causing another oil crisis
*The 1990 recession: Possible trigger: Desert Storm
*The 2001 recession: Possible trigger: The bursting of the “dot.com” bubble.
*The 2007 recession: Possible trigger: Collapse of the subprime mortgage market
        All recessions and depressions share one factor – reduction in debt growth – but all have had different triggers. It appears if we have only reduced deficit growth without the trigger, no recession or depression will result. And, a trigger event, without reduced deficit growth, will not cause a recession. The recession/depression bomb requires both a detonator (reduced debt growth) and a trigger.
        Triggers are difficult to evaluate (i.e., how serious they are), but as one small step toward predicting recessions we should keep in mind that a recession is far more likely during federal deficit growth rate decreases.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com