How Long Will the Recession Last?

Yesterday I was studying Value Line at the public library. They are a great starting point to learn about many individual stocks, which they research and rate individually, but I'm not convinced they know quite as much about the economy as a whole. In particular, they seem to be forecasting the recession will end around the beginning of 2010, which seems to be consistent with what is priced into the stock market as a whole. My concern is that most of the fund managers and other institutional decision makers now employed seem to have lived most of their careers during a period when the market went up and up, and any dip was a temporary setback which could be waited out.

Let us hope they are right and I'm wrong - but let's imagine the opposite for a moment. Imagine that Japan and China keep buying dollars and dollar denominated assets to support their manufacturing industries, but our recession keeps going deeper and they are getting less and less export bang for their dollar buck. A point might come where they decide the money would be better spent directly in their own economies. This would be a difficult decision for them, since the value of their dollar denominated assets would fall, but they might make it. Equally well, some smaller nation might decide to sell their dollar (and American bond) reserve first, hoping that they would get the best price by being the first to sell. That could start the landslide that might force China and Japan to sell weather they wanted to or not.

I honestly don't know if it's too late for Obama to do anything or not. I keep remembering they days just before some third world nations started defaulting on their debt. People knew they couldn't pay it off, but argued that there would be no default because it was in everyone's interest to pretend the debts were good, so the banks would keep refinancing and the countries would keep making inadequate payments, and the loans would be counted as good assets. We all know how that ended up.