It’s official: the last year in financial markets isn’t the Global Financial Crisis, the credit crunch, or even the Global Recession.
According to a Governor of the US Federal Reserve, it’s a "Panic", a description he made clear in a surprise speech in the US this week.
In the speech entitled "The Great Panic of 2008" Fed Governor Kevin Warsh described the American economy as being in a state of a panic that predated the official recession and may have significant long-run implications.
Mr Warsh is no lightweight. He’s a senior member of the Fed, one of the five person board of the most important central bank in the world.
It was one of the clearest and most striking speeches from a Fed member since the credit crunch erupted in August 2007.
He made it clear the term and the speech were his opinion, and not that of the Fed, or other members of the US central bank.
It’s more than just rhetoric: central bankers don’t go in for grandiose phrasing or dramatic descriptors, unless there is a very serious point to make.
Central bankers do not use words like "Recession", "Depression" and especially "Panic" at will. They have precise meanings and levels of alarm, Panic being the most alarming.
In the speech, Mr Warsh used the word "panic" more than 30 times, so we can take it he was trying to make a point. And he did.
This speech was made to an influential group of policy shapers: The Council For Institutional Investors in Washington.
It is as much a public speech as a private briefing for people at the top in the American capital management business about how serious the past near two years have been, how close the world and US economies came to failure, and what still needs to be done.
Unlike the recent talk of ‘green shoots’ in the economy and analysts trying to pick an upturn, this speech isn’t optimistic. In fact it is downright pessimistic.
For instance, in the speech, he said that while the pace of economic decline was likely to abate, he was "decidedly uncomfortable forecasting a sharp and determined resumption of growth in the coming quarters".
So, don’t fall for the strong rebound line that is starting to appear in market chatter and analyst talk.
The bottom line, yes conditions will ease and some sort of recovery will start, but it won’t be strong, it will be hesitant and a lot more work has to be done to provide reassurance that conditions are returning to normal and that banks and other groups are strong.
And through all of that, there are the normal hazards of economic policy, fiscal spending, monetary policy, interest rates, inflation, capacity and resources etc to be managed.
A tall order, and one made tougher, according to Mr Warsh by "The Panic".
"The period of the past 16 months is already well chronicled in the popular lexicon as a recession. The recent data are consistent with the view that this recession will endure longer and be deeper and broader than most.
"Characterizing the current period as a "recession" is still wanting, insufficient in some important respects. In my view, this period should equally be considered a panic, one that preceded, if not made more pronounced, the official recession. (That was his first use of the word ”panic” in the speech, in the third paragraph).
"Hence, the Panic of 2008, which preceded the calendar year, is a more revealing description of the recent economic and financial travails.
"As I will describe, panics involve generalized fears–often related to financial firms–that magnify economic weakness. The encouraging news, I should note, is that panics end. And this panic is showing meaningful signs of abating.
"Panics involve losses of confidence in the financial system, when even sound firms find it difficult to borrow.
"Panics are threatening to economic well-being. Panics take even less kindly to, and often result from, uncertainty. And panics place a greater burden on the deftness of policy responses than recessions alone.
"Our economic history contains many contractions in output–and losses in wealth–that were unconnected to panics. In the Panic of 2008, however, the breakdown in the financial sector has contributed to, and exacerbated, the economic downturn.
"By official measures, the current recession is already significant in scale, scope, and duration. And the deterioration in employment conditions in the current episode already ranks comparably to the recession of 1981-82. The unemployment rate is 8.5 percent and likely, in my view, to increase steadily through the balance of the year.
"Economic output, as measured by gross domestic product, contracted at a rate of about 6-1/4 percent in the fourth quarter of 2008 and is on track to contract sharply again in the first quarter, which would put the current contraction among the most severe post-World War II recessions.
"Though the pace of decline is likely to abate, I am decidedly uncomfortable forecasting a sharp and determined resumption of growth in the coming quarters.
"The panic conditions that have marked this period may also have long-run implications.
"I suspect that the process of an efficient reallocation of capital and labor will prove slower and more difficult than is typical after recessions.
"Policymakers should be wary of policies that make the economy still less capable of the growth, productivity, and employment trends that have
