There is NOT a lot of agreement on the answer to the above question.

However, the Federal Reserve uses the stock answer of: 2 consecutive quarters of negative growth (oxymoron there).  In other words, if the economy has a -% growth for 2 quarters we are in a recession.  The big thing wrong with this approach is that you are out of the problem by the time you can say you had a problem.

My personal definition is two pronged:

1.      Physiological - if you think things are bad—they will be. Currently we are being told how bad the housing, sub-prime loans, etc is, thus, giving rise to the thought of just how bad it is.  The strange thing about this is that while it may not affect you personally, you will act as if it does.

2.     This is the most important reason—the one that really does cause an economic problem—THE LACK OF FUNDS AVAILABLE.  If there is a marked decline in the money available for commerce it will contract seriously and for a long period.

The following charts are from the St. Louis Federal Reserve Bank.

The first chart is of the total funds in all federally insured financial institutions. It does NOT include public money funds at brokerage houses or the money held here in IRA/401K/KEOGH accounts.

One can easily see the shaded areas (recessions ) on this chart and see how the amount of money in the accounts continued to rise all during same.  Back in 1995, when I first began to following this, it was $950 billion dollars.  As of 12/31/07, the total is 3.882.4 TRILLION DOLLARS.  The entire cost of corporate America is approx $15 TRILLION. In other words, there is enough cash in savings accounts to pay 20% down on all the companies listed on the NYSE, AMEX, AND NASDAQ.

The second chart is the cash held by the general public in retail money funds at brokers, i.e., funds available to by stocks, bonds, etc.  You can see that it too rises in the shaded areas and then falls as everyone rushes to BUY discounted equities.

I would like to point out that this amount alone is ONE TRILLION DOLLARS.  You can readily see that this figure has risen constantly since 1980.  People have more money today than any time in history.

The next item of interest is the amount of money currently in IRA/Keogh accounts. This number is NOT included in the total saving figure.  In my opinion, it certainly should be as it is savings.  Oh by the way, the amount we all paid in to Social Security is NOT included either.  In other words, the figure you hear/read about the savings rate in the US is quite misleading.

The purpose of this display is to illustrate that there is more money in the economy today than at ANY time in HISTORY therefore it is literally impossible to have a serious economic down turn.

HOWEVER, WE CERTAINLY DO NEED A SLOW DOWN IN GROWTH IN ORDER FOR "NEED" TO CATCH UP WITH "WANT."  Even the world’s greatest runner needs to stop and rest in order to compete even stronger in the next big race.

Regards,

Jack