The case for and against a second dip

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investorzzo's picture
investorzzo
Status: Diamond Member (Offline)
Joined: Nov 7 2008
Posts: 1182
The case for and against a second dip

As you might surmise from the conclusion of my previous post, I have been worried about the possibility of a second dip, a new recession beginning sometime in the next year or so, before the current recovery has had a chance to produce much improvement. I was surprised to read (hat tip to Mark Thoma’s twitter feed) that Macroeconomic Advisors is suggesting that there is no chance of a second dip. (I was particularly surprised because MA’s own estimates of the growth impact of the waning fiscal stimulus were one of the reasons I was worried.) After reading their case for zero chance, I have to say that I am still worried. Verbally-intuitively, the case for a second dip still seems pretty overwhelming to me. I take comfort in the knowledge that I tend to have a pessimistic bias, and in the fact that sophisticated quantitative models are generally putting the odds of a second dip quite low. On the other hand, successfully forecasting recessions has not been a strong point of quantitative models.

Here is what I see as the case for and against a second dip. As you will see, I am more skeptical about the case against. Maybe someone can tell me what I have overlooked or how I am being too pessimistic.

http://seekingalpha.com/article/209781-the-case-for-and-against-a-second...

mainecooncat's picture
mainecooncat
Status: Gold Member (Offline)
Joined: Sep 7 2008
Posts: 488
Re: The case for and against a second dip

I was unaware that the initial dip had been reversed enough so that the concept of a second one made any sense.

No offense, but I think even talking about a so-called double-dip is simply carrying water for the statistic-manipulating propagandists who just decided one day that there was a "recovery" underway.

The crash course meticulously lays out the massive cooking of the books when it comes to GDP, as well as John Williams over at Shadow Stats. Off the top of my head, according to Williams' data, the US economy has been shrinking to flat for the better part of a decade, with the downleg in '08 exceeding ten percent GDP shrinkage I believe.

investorzzo's picture
investorzzo
Status: Diamond Member (Offline)
Joined: Nov 7 2008
Posts: 1182
Re: The case for and against a second dip
mainecooncat wrote:

I was unaware that the initial dip had been reversed enough so that the concept of a second one made any sense.

No offense, but I think even talking about a so-called double-dip is simply carrying water for the statistic-manipulating propagandists who just decided one day that there was a "recovery" underway.

The crash course meticulously lays out the massive cooking of the books when it comes to GDP, as well as John Williams over at Shadow Stats. Off the top of my head, according to Williams' data, the US economy has been shrinking to flat for the better part of a decade, with the downleg in '08 exceeding ten percent GDP shrinkage I believe.

Your first comment was noted in the comment section by another. I agree, it is all an illusion about any so called recovery. Especially when it's all been stimulus initiated.

http://brainden.com/

investorzzo's picture
investorzzo
Status: Diamond Member (Offline)
Joined: Nov 7 2008
Posts: 1182
Re: The case for and against a second dip

Checkout this jobs report. Somebody has been messing with the numbers. May -195,000?

http://news.coinupdate.com/job-losses-reported-as-largest-monthly-jobs-g...

Johnny Oxygen's picture
Johnny Oxygen
Status: Diamond Member (Offline)
Joined: Sep 9 2009
Posts: 1443
Re: The case for and against a second dip

The main problem with the 'Douple Dip' premiss is, of course, that there has been a recovery. Creating more debt to  temporarily alleviate a nose dive is not a recovery in anyway. There are constant references to 'another recession' which presumes we are not in one.

1. In the years since the Great Depression, there is no precedent for a long recession (longer than 8 months, in this case about 18 months) followed by a short recovery (shorter than 35 months).

There is also no precedent for the insane increase of the money supply either. This seems to be less of an argument 'against a double dip' and more of a historical query.

2. Recessions seldom begin when the unemployment rate is already high. In particular, since the end of the Great Depression, we have not seen a recession begin with an unemployment rate greater than 7.5 percent. (Today it is 9.7 percent.)

Probably because by the time the unemployment is that high you are already in a recession or depression. The actual unemployment rate is around 17% to 20%. Also this proposes that once the unemployment rate is high you can't have a recession which is just plain stupid.

3. Recessions are normally preceded by stock market declines of greater severity than what we have seen recently.

Again this presumes that we are currently not in a recession/depression. It doesn't account for the massive quantitive easing nor does it take into account that the banks that were bailed out do not have to list any losses on their books( OCD's) or debts to the US government.

 4. Credit spreads do not suggest a high risk of recession.

!?  Why in the world  would you look at credit spreads to tell you what the economy is going to do when the spreads can change drastically from day to day?

5. The price of oil has been reasonably stable, not exhibiting the sort of spike that has helped induce most of the post-WWII recessions.

Stable? Well since it hasn't shown any 'spikes' I guess its safe to assume it won't. C'mon...is this guy serious?

6. The yield curve (difference between long-term and short-term interest rates) is unusually steep. Recessions normally begin with a flat yield curve.

Hmmm...he lists this has a reason 'against' a double dip then goes on to say 'but its unlikely'.

Not only does the argument against a double dip presume too much he still doesn't make a strong case.

This article was not informative at all.

dryam2000's picture
dryam2000
Status: Gold Member (Offline)
Joined: Sep 6 2009
Posts: 292
Re: The case for and against a second dip

It's not about a second dip or not. 

Have you ever driven on ice or snow?

I think it's better to look at things like the beginning of a car wreck on snow.  Increasing debt has been making the road conditions more & more dangerous.  When Greenspan first recognized that the car slid a little bit he tried to be clever and tried to steer the car back on a straight path.  Instead, the car kept accelerating & he overcorrected the slide when he dropped interest rates & created the real estate & stock bubble.  The real estate & stock market bubble popped.  Bernanke comes in & oversteers the car again, except now the car is going even faster.  I would like to think that this car can be brought under control, but I don't see any possibility of that happening.  It will crash.  It's just a matter of whether it will be 1 month from now or 10 years from now.  I'm thinking sooner versus later.

The current situation is that things will be more & more volatile like a car wreck in slow motion.  I would try not to pay too much attention to what you hear in the main stream media because much of the information comes from the government or other parties that have a vested interest in spiinning information a certain way.  I also wouldn't put too much into short term fluctuations in the stock market.

Unfortunately, I think we are clearly in the Great Depression 2.0 & it's going to be much longer lasting & much deeper than anything before.

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