While our recent experience has been that recessions happen about once every decade, the U.S. used to experience recessions far more frequently.The U.S. had a recession every 56 months on average going back to 1854 according to the Economist, but since 1982 the U.S. has only had a recession every 106 months on average. During the last three decades recessions have been have as frequent as during much of U.S. history.
This seems to be down to credit availability; in the absence of a gold standard, the authorities could ease policy and stave off recessions.
But if we have reached the end-game of the debt super-cycle, then recessions will be more frequent. The last recession started in December 2007; if the cycle is 56 months, the next one is thus due in August 2012, less than two years away. Such short, sharp shocks make high-yield bonds look a very bad investment. The asset category changed in character during the great moderation; junk bonds used to be investment grade bonds gone bad, but after the mid-1980s, companies issued primary debt at junk yields. An economic cycle that lasts almost nine years gives investors a chance to earn their yield and get out before the bust; a cycle that lasts less than five years makes that much more difficult. The same principle applies to private equity.
However, even if we’re in for a period of more frequent recessions, it doesn’t mean growth stops. Even when the U.S. economy was experiencing recessions more frequently, it was still growing over the medium and long-term.
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