Tuesday, July 21, 2009

Martin Feldstein Sees Risk of Double Dip Recession

More and more are converting to our view - Martin Feldstein has been a reasonable voice through much of this mess, unlike the traditional punditry (including the economists class) normally sourced. [Apr 2, 2009: Martin Feldstein - Economic Recovery Has Long Way to Go]

On my end I just call this one big Great Recession, already by multiples longer than anything we've faced post World War II, that most likely will "technically" be classified as double dip due to the massive amount of government spending that will buffet official government statistics and paper over damage for a few quarters. So after we clap and cheer about the GDP turning positive perhaps in Q3, we'll see much of it was due to a massive drop in imports combined with massive government transfer payments. Yee haw.

Unless I am completely wrong and the engine of the world (the US consumer) acts very differently than I anticipate, unless we are going to do multiple $500-$750B type stimulii each year we're just going back to have a stagnant situation. A year from now we'll have to ask - what bone are we going to cut to prop up earnings now that all the muscle has been chopped, and in China we'll be asking what the outcomes of all the loan growth have been - their property and stock markets are flying as government money is sprouting in all directions; the misallocation of said loans should begin to be an "issue" 12-24 months out. Further, we've been discussing the state budget disasters coming for 2 years now - many states used this year's stimulus as a "stop gap" to plug holes in their budget. What for next year? This is why I believe a new stimulus will be upon us again by next winter.

We keep trying to get around the fact that Americans need to rebuild their savings, and we are content to hide this fact by stealing more and more from future generations to create false demand for homes, cars, et al. We just keep repeating the same errors and burdening grandkids with ever increasing bills. All we have is paper printing prosperity. [May 19, 2009: Paper Printing Prosperity Defined]

Via Bloomberg:
  • The U.S. recession may not be coming to an end and there is a risk the economy may experience a “double-dip” contraction, said Martin Feldstein, a professor of economics at Harvard University.
  • “There is a real danger this is going to be a double dip and that after six months or so we’ll have some more bad news,” Feldstein, the former head of the National Bureau of Economic Research and Reagan administration adviser, said today in an interview on Bloomberg Television. “We could slide down again in the fourth quarter.”
  • The economy could “flatten out” or “even be positive” in the third quarter, and then it’s likely to contract again in the last three months of the year as the effects of the federal stimulus program wear off and companies finish rebuilding inventories, he said. “There isn’t going to be enough to sustain a really solid recovery,” he said, even though recent data has provided some “good news” on the economy.
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