Thursday, September 10, 2009
Double Dip Recession Very Likely
Much media blather about positive economic data from the USA and the prospects of 'green shoots' in the the EU, notably a recording of the fact that Germany and France had stopped shrinking in growth terms, ignores the fact that so much of the steam now apparently being picked up by the world economy is driven by entirely artificial 'monetary and fiscal easing'. This is in fact a posh way of describing the process of 'printing money'. The problem is, what will happen to this 'recovery' once it is no longer sustained by this artificial stimulus.. The stimuli will have to be curtailed, its just a matter of timing. Leave the money presses rolling for too long and you will certainly generate inflation, stop too early and the sickly weak recovery shoots will wither.
Two notable economists, Nobel prize winner Joseph Stiglitz and Professor Nouriel Roubini of the New York University, have alerted us to this prospect...
In addition , Joseph Stiglitz, winner of the 2001 Nobel Prize in economics, has warned that the global economy could suffer a double dip, a pronounced rebound giving way to another slide.
'It is difficult to know whether or when there will be a W,' as such a course of events is often described, Stiglitz said.
Stiglitz, a former World Bank chief economist and an advisor to US former president Bill Clinton, said household balance sheets had been 'destroyed', which has meant that savings have gone up from zero to 7-9%.
A rising savings rate cuts into consumer spending, which is responsible for roughly two thirds of US economic growth. An 'inventory adjustment' is under way, as companies build up their stocks, Stiglitz said.
But 'because of the uncertainties, people are not hiring, unemployment is very high and foreclosures are likely to remain high,' he said.
Stiglitz has been a sharp critic of policies advocated by the International Monetary Fund, contending that they aggravate crises and impose public hardship.