Double-Dip Recession a 'Virtual Certainty'

[JohnSmith2007 353]

Double-Dip Recession a 'Virtual Certainty'

By Jeff Cox, CNBC.com Staff Writer

The U.S. economy is almost certainly headed back into a double-dip recession, and economists aren't seeing it because they're using "the old rules of thumb" that don't apply this time, well-known economist David Rosenberg told CNBC.

Consumers' focus on shedding debt rather than spending will prevent the economy from growing and bring a halt to the recovery, said Rosenberg, a former Merrill Lynch economist who now works at Gluskin Sheff, an advisory firm based in Toronto.

"The risks of a double-dip recession -- if we ever got out of the first one -- are actually a lot higher than people are talking about right now," he said. "I think that it's almost a foregone conclusion, a virtual certainty."

Rosenberg has long been pessimistic on the economy, believing that persistently high unemployment, weak economic indicators and massive debt-cutting -- deleveraging -- by consumers and businesses will send the economy into a double dip.

Though many economists disagree with Rosenberg about the chance of another recession, his views are widely followed on Wall Street and have often been accurate.

Unemployment remains stubbornly high at 9.6 percent, while Friday's economic reports showed modest gains in retail spending and the consumer price index.

In addition, a slew of leading economists, from firms including Deutsche Bank(DB), JPMorgan Chase(JPM) and Goldman Sachs(GS) have been scaling back their outlook for the gross domestic product.

On Friday, Goldman raised the chance of a double-dip happening to 25-30 percent. BMO Capital Markets, in its second-half outlook released last week, said consumer weakness has been a hallmark of weak recent recoveries, but this cycle is the worst.

Rosenberg, meanwhile, thinks other economists are relying too much on patterns from past recessions.

"Most economists, most strategists are still deploying the old rules of thumb that worked so well post-1945 where recessions were really just corrections in GDP in what was a secular expansion of credit," Rosenberg said. "People haven't wrapped around their heads what is a credit contraction all about."

While the notion that economic growth will be weak is gaining acceptance, a double-dip, where the economy enters a second phase of negative growth within a year of rebounding, remains a minority opinion.

"Where I disagree is, is the magnitude big enough to take us from a sustained expansion at a very low growth rate into a double-dip recession?" said Richard Hoey, chief economist at BNY Mellon, who appeared with Rosenberg on CNBC. "Among the reasons I don't think we have a double-dip recession is we reliquefied practically every corporation in America... The large corporations have been able to have a huge gain in profits and they're not spending it. So their cash is building up every single day."

The history of previous recoveries shows that double-dips are rare and unlikely except in extreme cases, said Sean Clark, of Clark Capital Management, another guest on CNBC.

"This 12-month recovery, since it bottomed in June of last year, has been stronger than the previous two post-recession periods," Clark said. "Double-dip recessions are very much the exception to the norm."

But Rosenberg said that line of thinking ignores how this downturn, spurred by a credit relapse and fed by a reluctance of businesses and consumers to spend money, is different than others. He pointed out that the household employment survey has declined three months in a row, a condition that indicates a recession 98 percent of the time.

"Comparing to the recessions of the post-World War II period is a total waste of time," he said. "This is a totally different animal."

http://www.thestreet.com/story/10835877/1/double-dip-recession-a-virtual-certainty.html?puc=_tscrss

[Mr. Big Dog 10,747]

Double-Dip Recession a 'Virtual Certainty' self fulfilling prophecy

Thread header fixed. All we need is more talk about an inevitable double-dip recession so people are sufficiently encouraged to tighten their spending even more - and it's sure to come.

[JohnSmith2007 353]

Thread header fixed. All we need is more talk about an inevitable double-dip recession so people are sufficiently encouraged to tighten their spending even more - and it's sure to come.

Until the unemployment problem is fixed then a tightening of spending isn't a choice, it is a neccessity. This isn't a self fulfilling prophecy, it is inevitable unless people get back to work.

[Pinocchio Liberal 268]

Thread header fixed. All we need is more talk about an inevitable double-dip recession so people are sufficiently encouraged to tighten their spending even more - and it's sure to come.

Its the peoples fault?

[Hilarious Clinton 452]

Its the peoples fault?

You know he thinks the Messiah has nothing to do with anything negative.

[HAL 9000 96]

Jesus Christ is not negative.

[Pinocchio Liberal 268]

You know he thinks the Messiah has nothing to do with anything negative.

Its usually the outcome when ones imagination takes over.

[mawilson 2,133]

Hopefully the second dip will finally correct the imbalances that should have been

corrected by the first dip. The government should have allowed market forces to

correct the imbalances the first time, instead of trying to artificially prop up

the economy with deficit spending, following the Bush/Greenspan playbook. All they

did was push the recession down the road while setting up the upcoming currency and

debt crises.

[Dan J 277]

Until the unemployment problem is fixed then a tightening of spending isn't a choice, it is a neccessity. This isn't a self fulfilling prophecy, it is inevitable unless people get back to work.

Actually it is. The biggest argument from business about not hiring is "uncertainty". People pushing predictions like this is what is driving uncertainty. A business leader will read a story like this and continue to hold off hiring, thus prolonging a recovery and making the prediction essentially come true.

A modern economy is much more influenced by what people perceive. Those perceptions drive decisions whether its hiring new employees or investing in a new product or venture.

[Mr. Big Dog 10,747]

Actually it is. The biggest argument from business about not hiring is "uncertainty". People pushing predictions like this is what is driving uncertainty. A business leader will read a story like this and continue to hold off hiring, thus prolonging a recovery and making the prediction essentially come true.

A modern economy is much more influenced by what people perceive. Those perceptions drive decisions whether its hiring new employees or investing in a new product or venture.

Yep. It really isn't that hard a concept to grasp.

[Pinocchio Liberal 268]

What does a TRILLION dollars look like? Check it out! We the public should definitely go on a spending spree. :bonk:

http://www.pagetutor.com/trillion/index.html

[HAL 9000 96]

Actually it is. The biggest argument from business about not hiring is "uncertainty". People pushing predictions like this is what is driving uncertainty. A business leader will read a story like this and continue to hold off hiring, thus prolonging a recovery and making the prediction essentially come true.

A modern economy is much more influenced by what people perceive. Those perceptions drive decisions whether its hiring new employees or investing in a new product or venture.

There should be a Phil Collins song for this.

[Pinocchio Liberal 268]

Actually it is. The biggest argument from business about not hiring is "uncertainty". People pushing predictions like this is what is driving uncertainty. A business leader will read a story like this and continue to hold off hiring, thus prolonging a recovery and making the prediction essentially come true.

A modern economy is much more influenced by what people perceive. Those perceptions drive decisions whether its hiring new employees or investing in a new product or venture.

I really dont think business leaders make decisions based on a frickin news article. They look at hard costs!

[JohnSmith2007 353]

Actually it is. The biggest argument from business about not hiring is "uncertainty". People pushing predictions like this is what is driving uncertainty. A business leader will read a story like this and continue to hold off hiring, thus prolonging a recovery and making the prediction essentially come true.

A modern economy is much more influenced by what people perceive. Those perceptions drive decisions whether its hiring new employees or investing in a new product or venture.

No it isn't. People without jobs cannot spend because they don't have any. People with jobs worry about losing their jobs in today's market so it would be foolish to spend money they may need later to survive. This isn't about the people not doing their "jobs" and spending like a sailor on leave and to hell with tomorrow. The way for business to overcome the uncertainty and start hiring again is for the government to create conditions that reduce that uncertanty. If they think higher business taxes are on the way and more regulation is on the way they will not hire. This is 100% the governments fault, not the people who are trying to survive.

[Pinocchio Liberal 268]

There should be a Phil Collins song for this.

Well its not Phil Collins its more like Gary Wright and Dream Weaver!