So what is a Recession?  The standard newspaper definition of a recession is a decline in the Gross Domestic Product (GDP) for two or more consecutive quarters. This definition is unpopular with most economists for two main reasons:  First, this definition does not take into consideration changes in other variables. For example this definition ignores any changes in the unemployment rate or consumer confidence. Second, by using quarterly data this definition makes it difficult to pinpoint when a recession begins or ends. This means that a recession that lasts seven months or less may go undetected, which is incorrect.

The Business Cycle Dating Committee at the National Bureau of Economic Research (NBER) - (now that is a mouthful - how would you like to answer those phones) provides another way to find out if there is a recession is taking place. This committee determines the amount of business activity in the economy by looking at things like employment, industrial production, real income and wholesale-retail sales. They define a recession as the time when business activity has reached its peak and starts to fall until the time when business activity bottoms out. When the business activity starts to rise again it’s called an expansionary period. By this definition, the average recession lasts about a year.

So how do “They” spot a Recession:  In the United States, the economy follows a somewhat regular pattern of expansion and contraction. The economy will typically expand steadily for six to 10 years and then enter a recession for six months to two years. The point where the recession begins is known as a peak, and the point where it ends is referred to as a trough. Following the trough, the economy expands again toward another peak. Economists call the period of time between two peaks a business cycle.

So what do “They” do to slow down/halt/ prevent a Recession?

Below you will find some of the “text book” steps that are typically taken to help.   Note that some of these look uncomfortably familiar.  The bold ones are things that we have seen in the last six months actual take place.

Fiscal Policies

• Tax cuts for businesses or for individuals - This gives people and corporations more money, which may make them more likely to buy things, which increases demand.
• Increased spending to establish new government jobs - This increases demand for labor, which can lower the unemployment rate.
• Automatic fiscal policies, which kick in right away - One of the most important automatic fiscal policies is unemployment insurance. This system provides an income for people who are out of work.

Monetary Policies

• Reduce the reserve ratio - If banks don't have to keep as high a percentage of their assets in reserves, they have more accessible money. This might lead them to offer more attractive loans to their customers, which can help boost economic growth.
• Lower the federal funds rate - This frees up more money for banks, allowing them to offer more attractive loans.
• Lower the discount rate (the rate on federal loans) - This frees up money for banks that are borrowing money from the Fed. Again, these savings may be passed on to the bank's customers.
• Use its own reserve money to buy government bonds - Buying bonds translates to income for the U.S. government, which puts more money into the economy.