What is the Definition of a Double Dip Recession
Double-Dip Recession Dangers
There’s a big danger of “double-dip” recession looming on the world’s financial horizons, according to Nouriel Roubini, a professor at the Stern School of Business at New York University. Roubini was one of the few economists to predict correctly the enormity of the world’s latest financial woes. In his opinion piece on the Financial Times’ website, he warned that policy makers face a quandary as to what to do, too little or too much will harm everyone financially. He cautions policy makers that any lessening of budget deficits by raising taxes and creating spending cuts could hamper recovery.
Conversely, maintaining large deficits can cause inflation to grow, making bond yields and interest rates on loans continue to rise, which is also detrimental to recovery.
Simply put, if no one can afford to take out a loan to make a new business venture or start new construction, jobs aren’t made, taxes aren’t paid and everything stays at a standstill.
Another reason for concern, according to Roubini, is that food, energy and oil prices are rising faster than real demand dictates, and financial speculating and over-the-top liquidity creates false high demands, a financial house of cards. He warns that the world’s economy “could not withstand another contradictory shock” if speculation brings oil prices too quickly to $100 per barrel (with U.S. crude futures currently at about $73.83 per barrel). It’s speculating such as this that has contributed to our current state of global financial instability.
Roubini states that the slow growth he predicts would follow a short period of fast growth, as inventories and production output come back from nearly depression levels. It’s a classic scenario for financial fiasco, when optimism in the future is not bolstered by realities in demand.
With the balancing act that is the economy, it’s up to experts such as Roubini to predict trends. His outlook may seem pessimistic, but there are a lot of economists out there who share his viewpoint. Deficits are at all-time highs, jobs are still hard to find and the global economy is still struggling.
However, not all outlooks are negative and none are written in stone. It is, after all, speculation. Experts dropped a major ball recently when they advised investors to steer clear of the equities market, missing out on a 40% rise, one of the largest in history.
While it’s not the time for pie-eyed optimism or risk-taking, there is evidence of hope on the horizon. Home sales are up, jobs are up, housing sales are up and interest rates are down. Skeptical inquiry is still relevant and always will be; perhaps it may be peppered with a tiny bit of hope in the world’s economic (and our own) futures.
