How Will We Know We Are in Recovery?

Yep. We're in a recession.

Don't take my word for it. These are the bona fide findings of whiz kids at the NBER , the National Bureau of Economic Research.

I know this will come as a shock to you, but according to this venerated assembly of gifted minds, we've actually been in a recession since December last year.

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Who knew?

These guys may have been educated at the nation's best universities, but, they're really behind the curve. Even Joe the Plumber knew before they did.

In all seriousness, the disturbing numbers relating to this economic downturn may mean that we are in the midst of the longest slump in the post-World War II era.

The Heart of the Depression

The longest economic declines since 1945 were the 16-month downturns that ended in March 1975 and November 1982. In contrast, the Great Depression lasted 43 months, from August 1929 to March 1933.

Based on the data analyzed by the NBER, the U.S. was the first country to have slipped into a contraction. While definitions may differ, the economies of both the Euro area and Japan fell into a slump in the second quarter of this year, making it the first simultaneous recession in the three regions in the postwar era.

Unless there is a dramatic turnaround, we are looking at some pretty severe numbers going the final quarter of the year, with a carryover into at least the first two quarters of next year. Clearly, a key to restarting the domestic and international economies is to unclog the logjam in the credit markets.

More Than a One-Third Cutback

This credit crunch, especially for consumers, may be exacerbated by the revelation over the last several days that the nation's largest credit card lenders will be cutting customers' credit lines over the next year and a half. Credit card issuers like American Express — the nation's largest credit card issuer — could pull as much as $2 trillion in consumer credit during the next 18 months.

Currently, American consumers have access to about $5.5 trillion in available credit. This cut by the credit card companies would amount to a whopping 36 percent reduction.

Apparently, the biggest factor in determining the starting point of the recession has been the mounting job loss levels. So far this year, 1.2 million jobs have been cut from the economy. Before this cycle ends, the national jobless rate is projected to reach 6.8 percent, the highest level since 1993.

Bernanke’s Strategy

As the negative numbers continue to pile up, the President-elect and the Fed will be hardpressed to find quick solutions. Benanke and the Fed already have reduced interest rates to their lowest level in the postwar era. In the coming months, the Fed Chair may pull a page from the Japanese economic recovery "playbook."

Under a program known as Quantitative Easing, the Bank of Japan effectively lowered interest rates to zero in an effort to jumpstart their economy after their real estate bubble burst. At the same time, the national bank continuously injected cash into the banking system to build-up their reserves.

To date, the Fed already has pumped nearly $2.15 trillion into U.S. banks — separate from the $700 billion bailout — leading many to believe that the central bank may already be laying the groundwork for a program similar to the Japanese.

The bad news is that it took more than five years for these measures to hoist Japan out of its economic rut. Since we now know that we're officially one year into this economic morass, maybe quick action by the Fed, combined with equally aggressive steps by the new President, will shorten the cycle.

Then again, if it took a year to confirm what most of us already knew, we may not know that we're in a recovery until it's too late to enjoy the fruits of our success.