subject: The Exact Wildcard [print this page] Unlikely the day turns out through in which I do not find out a discussion or maybe read through an writing on the subject of "the" future double-dip recession and currently had been absolutely no exclusion. The markets tanked on much more awful economic news along with each and every self-appointed expert upon the background of the Depression states in order to observe impressive similarities with the current political, financial as well as economical circumstances. Which may well be so, though I do not believe that a double-dip recession is very likely to occur?
Yes, the economy is slowing down and even the Federal Reserve has lowered its forecast of economic growth. Unemployment is still near 10%, the housing market is still weak, retail sales have slipped for two consecutive months and consumer sentiment is sinking fast. But inflation is benign, interest rates are extraordinarily low and corporate earnings are rising. This combination of factors is bullish, very bullish, for stock prices.
Practitioners connected with the double-dip idea can communicate just about all they prefer with regards to government debt, slowing down consumer spending, the oil spill, LeBron James or whatever. It is not going to generate the economy similar to rising cost of living, interest rates and revenue do. Thus the reason why is the economy slowing?
The economy is slowing because small business owners are not spending money and creating jobs as they have done in the past. They are concerned about the political turmoil within the country and uncertain of the future. Those who need the money to grow can't get it. Those who can get the money don't want it. Those who have it won't spend it. The traditional effect low inflation and interest rates have on stimulating the economy will be inhibited until government policies become more business friendly. So where do we go from here?
This might be my contention that regardless regarding government guidelines, a double-dip recession will not come about mainly because long as inflation continues benign, interest rates stay lower along with corporate profits continue in order to rise. The Fed has over and over again mentioned it will certainly retain interest rates low as long as it usually takes to maintain the economy expanding. That is fantastic; however it may well not necessarily end up being feasible. They can manage interest rates; however they will are unable to command inflation.
If inflation turns into deflation, the economy will shrink. If inflation takes off, the Fed will be forced into raising interest rates. When that happens, a double-dip recession is a virtual certainty. So it all depends upon what inflation does. It's The Wildcard.
MOVING TO THE SIDELINES
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