Ken Fisher: What Causes A Deep Recession?
Ken Fisher explains that while the U.S. hasn't experienced a technical business cycle recession in 17 years, recessions are typically triggered by dislocations (often government-caused), and their severity depends on accumulated excesses like excess debt, poor investments, and bureaucratic bloat that must be purged during downturns.
Summary
Ken Fisher addresses the question of what causes deep recessions and when the last one occurred. He clarifies that the U.S. hasn't experienced a traditional business cycle recession for 17 years, but emphasizes that understanding triggers differs from understanding severity. Fisher identifies that recession triggers typically involve some form of dislocation, often related to government actions. He provides the 2007-2009 financial crisis as a specific example, attributing it to mark-to-market accounting requirements imposed by the Financial Accounting Standards Board and International Financial Accounting Standards Board on banks' collateralized mortgage obligations, which forced $2 trillion in writedowns. Fisher distinguishes between what causes recessions and what makes them deep or severe. Depth and severity result from accumulated excesses built up during periods of excess optimism and overlooked problems, including excessive bureaucracy, non-visible debt, and decayed plant capacity that must be purged and replaced to establish a solid foundation for future expansion. Fisher expresses concern about the 17-year absence of a traditional recession, suggesting that unmeasured and unrecognized excesses and risks have likely accumulated in the global business world during this extended period of stability.
Key Insights
- Fisher argues that recessions are typically triggered by dislocations, often caused by government actions, rather than by broad economic forces
- The 2007-2009 recession was specifically triggered by mark-to-market accounting requirements from FASB and IFRS that forced banks to write down $2 trillion in collateralized mortgage obligations
- The severity and depth of recessions is determined by accumulated excesses—including excess optimism, overlooked problems, excess bureaucracy, non-visible debt, and decayed plant capacity—that must be purged during downturns
- Fisher expresses concern that the 17-year absence of a traditional business cycle recession likely means unrecognized excesses and risks have accumulated in the global business world that could amplify the next downturn
- Fisher distinguishes between the trigger event for recessions and the factors that determine recession depth, identifying triggers as dislocations but depth as dependent on built-up excesses
Topics
Transcript
[0:00] A regular question is what causes deep recessions and when was the last one we have? Well, we haven't really had a technical business cycle recession for 17 years now. But the issue is what causes it? And that's a different question than what causes it to be deep. Now, to try to put that into some perspective for you, the triggering event for recessions is usually some form of dislocation. That's often not always often something that government has done that [0:31] dislocates. In for example 200789 the last time we had a business like a recession that triggering was caused by the financial accounting standards board's mark tomarket accounting requirement and the international financial accounting standards board's…
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