US recession has already begun

As the US Congress again contemplates the US$700 billion bailout package, the chief economist for Bank of New York Mellon[XML1] , Richard B. Hoey, believes that the damage to real economic activity has already been substantial enough that a US recession and global recession have already begun.

In his latest economic update, issued overnight, Hoey writes that the world is in a serious financial crisis, which is the natural aftermath of a period of excessive risk taking. He said that the depth and duration of the recession would depend on how quickly the financial system could be stabilised.

“We believe that the passage of the controversial Troubled Asset Relief Program would meet several critical requirements for stabilising the financial stresses which threaten to deteriorate into a worsened financial crisis,” Hoey said. “It is big and it is quick.”

He said that he expected the legislation to be passed in some form and that, if it was, it should contribute to a transition from disorderly deleveraging to semi-orderly deleveraging to, finally, orderly deleveraging.

“However, the recuperation from the financial crisis should be a prolonged process,” Hoey said. “We believe that the US cyclical outlook is for a recession through the spring or summer of 2009, while a multi-year global and domestic rebalancing should persist, as the rapid expansion of US credit to finance consumption and housing is unlikely to return.” [XML1]CompanyName,25129