Wednesday 9 December 2009

Economics: Double dip warning

Some of you who have followed my blog right from the very first few entries should know that my favourite economist is no other than the winner of the 2008 nobel memorial prize in economics, Paul Krugman. In the past, I have recommended his book, the Return of Depression Economics and the Crisis of 2008, as well as his blog on the New York Times website, and surely you must have benefited a lot from his brilliant insight (and his humorous English).

I like this line he made the best, "When life hands you Lehman, make Lehman aid."

Well, recently, I read something really horrifying! Titled"Double dip warning", the article goes as follows (highlighting the crucial information):


December 1, 2009, 11:30 AM

Double dip warning

I’ve never been fully committed to the notion that we’re going to have a “double dip” — that the economy will slide back into recession. But it has been clear for a while that it’s a serious possibility, for two reasons. First, a large part of the growth we’ve had has been driven by the stimulus — but the stimulus has already had its maximum impact on the growth of GDP, will hit its maximum impact on the level of GDP in the middle of next year, and then will begin to fade out. Second, the rise in manufacturing production is to a large extent an inventory bounce — and this, too, will fade out in the quarters ahead.

Two stories this morning highlight the risks. The WSJ has a report on highway construction titled Job Cuts Loom as Stimulus Fades:

Highway-construction companies around the country, having completed the mostly small projects paid for by the federal economic-stimulus package, are starting to see their business run aground, an ominous sign for the nation’s weak employment picture.

Meanwhile, the ISM for manufacturing suggests that industrial growth is already slowing down.

I’d be more sanguine about all of this if there were any indications that private, final demand is taking off — consumers, business investment, whatever. But I haven’t seen anything suggesting that sort of thing.

The chances of a relapse into recession seem to be rising.

Then he wrote a few more articles, "Good news is bad news", "Bernake does a bad, bad thing" showing evidence that this is not going to be good.

For those of you who cares about the world of money, be vigilant.

Sanguine -- (of someone or their character) positive and hopeful
Vigilant -- always being careful to notice things, especially possible danger