A Recession is as a period of economic contraction, generally defined as two consecutive quarters with decreases in real Gross domestic product. Other variables that economists consider are real income, employment rates, and industrial production. The National Bureau of Economic Research describes a recession as “a period of diminishing activity rather than diminished activity.”
Recessions are the natural result of credit expansions and manipulation of the interest rates by the central bank. When interest rates are lowered artificially, through expansion of the money supply, investment that would be deemed unprofitable, or otherwise postponed, can be undertaken. This leads to bubbles in various sectors of the economy, such as the Dot-com bubble in the early 2000s, and in housing immediately following. This malinvestment must eventually be corrected by allowing the recession to run its course, thereby eliminating bad debt, and realigning the capital structure. For a more thorough explanation, see the Austrian Business Cycle Theory.
- The Risk of Redefining Recession, CNN Money. 05-06-2008
- Capital in Disequilibrium: An Austrian Approach to Recession and Recovery (pdf) – Noah Yetter and John P. Cochran
- The National Bureau of Economic Research – Business Cycle Dating Procedure: FAQ
- No, the Free Market Did Not Cause the Financial Crisis – Thomas E. Woods, Jr.