Murder most foul

By The Economist online

IN JUNE America’s economic expansion will be seven years old. That is practically geriatric: only three previous ones lasted longer. The record boom of the 1990s survived only ten years.

It is tempting to look at that ten-year mark as something like the maximum lifespan of an expansion in America, and to worry, correspondingly, that the current expansion’s days are running short. But are they? At a press conference in December Janet Yellen, chairman of America’s Federal Reserve, declared: “I think it’s a myth that expansions die of old age.” Yet die they do. Either Ms Yellen is wrong, or someone is bumping off otherwise healthy expansions before their time.

Like death, recessions (commonly defined as two consecutive quarters of falling GDP) are a part of life. Supply shocks occasionally prompt them: soaring oil prices in 1973 hit consumers in rich economies like an enormous tax rise, for instance, diminishing their purchasing power and thus prompting GDP to fall. More often, weak demand is to blame. Financial-market wobbles or rising interest rates cause people to cling tighter to their cash. Fear proves contagious,…

Read more here:: The Economist – Economics