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The Vanishing Recession: Why Ultra-Rare Downturns Pose a Growing Threat
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For decades, recessions were a predictable, albeit unwelcome, part of the economic cycle. But a striking trend has emerged: recessions are becoming remarkably rare. This prolonged period of growth, while seemingly positive, is raising concerns among economists who fear it’s storing up trouble for the future. The last official recession in the United States, according to the National Bureau of Economic Research (NBER), ended in June 2009 , marking one of the longest expansions on record.
The absence of regular economic corrections allows imbalances to build within the system. When economies grow for too long without a reset, they become vulnerable to more severe shocks
, explains Dr. Anya Sharma, a leading economist at the Global Institute for Economic Analysis. This “fat and slow” effect, as some economists describe it, can manifest in inflated asset bubbles, excessive risk-taking, and misallocation of capital.
The History of Recession Frequency
Historically, recessions occurred roughly every five to ten years. The post-World War II era saw a relatively consistent pattern of expansions and contractions. Though,as the 1980s,the frequency and duration of recessions have decreased.The 2020 recession, triggered by the COVID-19 pandemic, was exceptionally short and sharp, quickly followed by a robust recovery fueled by unprecedented fiscal and monetary stimulus.
Did You Know? The average length of a US recession since WWII is approximately 11 months.
| decade | number of Recessions | Average Recession length (Months) |
|---|---|---|
| 1950s | 2 | 10 |
| 1960s | 1 | 11 |
| 1970s | 3 | 13 |
| 1980s | 2 | 6 |
| 1990s | 1 | 8 |
| 2000s | 2 | 18 |
| 2010s | 1 | 18 |
| 2020s (to date) | 1 | 2 |
The Risks of Prolonged Expansion
Several factors contribute to the declining frequency of recessions.These include improvements in macroeconomic policy, increased globalization, and the rise of central bank independence. Though, these same factors can also exacerbate the risks associated with prolonged growth. Such as, low interest rates, designed to stimulate economic activity, can encourage excessive borrowing and asset price inflation.
Pro Tip: Diversifying investments and maintaining a healthy financial cushion are crucial during extended periods of economic growth.
The longer an expansion lasts, the more likely it is that imbalances will accumulate. These imbalances can take the form of overinvestment in certain sectors, excessive debt levels, or a widening gap between asset prices and underlying fundamentals. When these imbalances eventually unravel, the resulting correction can be notably painful.
“The absence of regular recessions doesn’t mean the economy is stronger; it means it’s more fragile,” argues Professor David Lee,an expert in financial stability at the University of California,Berkeley.
Furthermore, the lack of recent recessionary experience can lead to complacency among investors and policymakers. This can result in a underestimation of risk and a failure to take appropriate preventative measures. The current economic landscape, characterized by low volatility and abundant liquidity, might potentially be creating a false sense of security.
The implications of this trend are meaningful. A future recession, following a prolonged period of growth, could be deeper and more protracted than those experienced in recent decades. It could also
