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Is next US recession years away?
Fri, 20 May Pre-Open

Jan Hatzius may not be a big name by himself. But his views will certainly come under serious consideration when we mention that he is the Chief Economist of Goldman Sachs.

So, what does Jan Hatzius and his fellow tribe at the world's largest investment bank have to say these days? Quite an interesting thought we should say. As per Mr Hatzius, the next recession in the US is 'years away'.

And what arguments did he give out to back his claim? Well, he is of the opinion that the US labor market is still very loose with unusually high unemployment rates. And this will prevent the emergence of any recession of any kind as recessions typically accompany a tight labour market.

We don't claim to be specialised in the field of economics but we can't help but point out an obvious flaw in the reasoning of Mr Hatzius. He seems to be making a generalised statement based on some small data point somewhere.

A tight labour market could indeed bring about a recession but to say that this has to happen 10 times out of 10 is perhaps taking it a bit too far. An economy is a very complex beast and hence, making such generalised statements is indeed fraught with risks.

We are of the view that if trillions of US dollars couldn't bring back the US labour market back on its feet, we wonder whether giving the same medicine all over again will do the trick.

The US labor market seems to be facing some sort of a structural impediment. Unless that is sorted out no amount of quantitative easing is going to come good.

Sure there will be some costs involved for undertaking an overhaul of the now defunct parts of the US economic system. But by trying to cover it up with quantitative easing will only make the problem bigger in the future and would involve even greater costs.

Thus, the earlier the US polity tries to wake up and smell the coffee, the better it will be for its own economy and also for the rest of the world. The recession in the US could be years away but it would have the potential of inflicting damage far greater than anyone would have imagined.

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