US recession official; may last till mid-'09

The US economy is in recession. The National Bureau of Economic Research (NBER) has officially declared it. The bureau says that the economic slump in fact started somewhere in December 2007. Experts believe that the current downturn may last till the middle of 2009 and will be the most severe slump since the 1981-82 recessions.

According to the NBER, in January 2008 personal income in the US Fell, this at a time when industrial production peaked in the country. This has led to a market with abundant supply of goods but with very few buyers for them.

US Treasury Secretary Henry Paulson said treasury is actively involved in developing new programs to strengthen lending. It will discuss these programs with the Congress and the new administration and is still examining foreclosure mitigation ideas. Journey ahead is going to be difficult, he added.

Paulson said, ''Today we continue to work through a severe financial crisis. While we are making progress the journey ahead will continue to be a difficult one. But I have confidence that we are pursuing the right strategy to stabilise the financial system and support the flow of credit into our economy. We expect banks to increase their lending as a result of these efforts and it is important that they do so. This lending won't materialise as fast as any of us would like. But it will happen much faster as confidence is restored as a result of having used the tarp to stabilise the system and to strengthen the capital in our banks.''

Ben Bernanke, Chairman, US Federal Reserve said, "Regarding interest rate policy although further reductions in the current federal funds rate target of 1% are certainly feasible, at this point the scope for using conventional interest rate policy to support the economy is obviously limited."

Experts react:
Robert Doll, Vice Chairman, BlackRock said, "We have been up 18% in the last five trading days. So, we have given up a little more on that today. Not unusual, a bear market rally happens fast and then we give it all back. I think that the volume was light that's a good news point. Everything was about quality today, big outperformed the small, the more defensive outperformed the more cyclical ones.  It is sort of a tailor-made correction after last week's gain. We have to recognise that stocks are down more than 50% from their high. So, we are closer to wherever that eventual low will be. We were 840 on the S&P 500 on October 10. We are about that level as we speak. We are in a bottoming process. I think you don't chase rallies but on a  big sell-off you can slowly but surely add to stocks and I think that will be awarded a couple of years down the line.''

Punita Kumar Sinha, Sr Portfolio said, "If u go back over 20 years the market is as cheap as it has ever been. So it's not just the last five years and while there is going to be decline in some companies next year, while there will be a slowdown in earnings growth I still think that a lot of that will be discounted in the stock market. I think either you have to take a very short-term view and trade this market like you have to trade any Emerging Market (EMs) because markets can have very strong bear markets rallies. Markets can have very strong corrections even in a period of two-three months or you have to take a longer term view like two-three years because I think this is cyclical downturn which can turnaround in the next two years."

 Paul Krugman, 2008 Nobel Prize winner in Economics said, "It's a freefall right now. All the numbers, the ISM came this morning, the unemployment claims all of them are suggesting we are really in a steep decline. This is a very nasty slump and very little traction for the normal policy tools."