Friday, August 5, 2011

NY Times: Double Dip Recession Growing in Likelihood

It's been about 30 years since the U.S. slid into recession, crept out and then fell back in again — known as a double-dip contraction — and now the country seems poised to repeat history, the New York Times reports.

"When what may eventually be known as Great Recession I hit the country, there was general political agreement that it was incumbent on the government to fight back by stimulating the economy. It did, and the recession ended," the Times reports.

The government can do little to stop it.

"But Great Recession II, if that is what we are entering, has provoked a completely different response. Now the politicians are squabbling over how much to cut spending. After months of wrangling, they passed a bill aimed at forcing more reductions in spending over the next decade."

Economies normally bounce back from recession by growing at a brisk pace, often more so than before the downfall.

That doesn't happen when credit freezes, which is the case today and also the case around the time of the double dip in the early 1980s.

Furthermore, like 30 years ago, government policies today have been unable to get the economy going again, which suggests the economy must relapse back into recession, hit a bottom and then recover again.

"Government stimulus programs historically have often appeared to be accomplishing little until the cumulative effect suddenly helps to power a self-sustaining recovery. This time, the best hope may be that the stimulus we have already had will prove to have been enough."

Fears of a recession are panicking investors and punishing stock prices, sending the Dow Jones Industrial Average plunging.

"The velocity and the magnitude of the decline was surprising to me," says Tom Manning, chief investment officer at Silver Lake Advisors, according to the Boston Globe.

"Fears of a recession seemed to grip investors all day long."

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