Calling a recession and blaming it on interest rates

“According to Chancellor, ultra low interest rates led to ‘malinvestment’ and thus low productivity. It’s true that much of the investment made in the last 20 years has gone not into productive sectors and instead has been moved into financial assets, leading to stock and bond market ‘bubbles’. But surely the reason for that is not artificially low interest rates, but low profitability on productive investment, now near all-time post-1945 lows along with productivity growth.”

Michael Roberts Blog

The latest US GDP figures for second quarter of 2022 renewed the debate about whether the US economy was in a recession or not.  Real GDP contracted in the second quarter of this year by a 0.9% annualised rate (or by 0.2% quarter over quarter). That meant the US economy had contracted for two successive quarters, and so ‘technically’ (by that definition) was in a recession.  Real GDP is now up only 1.6% from Q2 2021.  And business investment is slowing, up only 3.5% from this time last year, the slowest rate since the end of the COVID slump in 2020.

But calling the US economy in ‘recession’ was denied by the powers that be, like President Biden, Fed chief Jay Powell and many mainstream economists who point out that unemployment is still near all-time lows and consumer spending is strong. Moreover, it is likely that this first estimate of…

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