World headed for second recession, or double-dip depression

Economic Gauge

“When the Great Depression started after it [market crash of 1929], it’s thought that politicians actually started the Great Depression by putting through too many rules and regulations…” — CBC’s Fred Langan

How can the economy improve if no goods are being produced? Over the last 8 years the US basically been simple purchasing goods from other countries like China with increasingly worthless pieces of paper called dollars. If the Western world (Ie. USA) continues this policy of keeping the banks alive with worthless money from taxpayers’ money and have a country produce nothing, how can the GDP increase? It won’t and can’t.

The same speculation and wall street corruption of the 1920’s is the same as corruption in in the financial markets sub prime scam that caused the banks to collapse and real estate market to bust. Banks are the biggest dealers of stocks and when the dealer goes bust so does the market; everbody’s savings and investment accounts; and they weren’t insured prior to 1934. There were no pensions either. Corporate pensions didn’t exist, no welfare, and no government pension.

Trade deficit threatens a double-dip recession, economic Armageddon
By Peter Morici
Online Journal Contributing Writer

Today, the Commerce Department will report September international trade in goods and services. The trade deficit — the amount imports exceed exports — is expected to rise to $32.5 billion from $30.7 billion in August.

The trade deficit was a principal cause of the Great Recession. Now, it threatens to torpedo the economic recovery and keep unemployment above 10 percent for the foreseeable future.

More than anything else, U.S. businesses need customers — more sales of U.S.-made goods and services — to get the economy rolling and hire more Americans.

The deficits on oil and trade with China account for nearly the entire U.S. trade imbalance, and money spent on imported gasoline and Chinese coffeemakers can’t be spent on American-made products, unless offset by exports.

At 2.7 percent of GDP, the trade deficit subtracts more from the demand for U.S.-made goods and services than President Obama’s stimulus package adds.

Obama’s stimulus is temporary, whereas the trade deficit is permanent. Moreover, the trade deficit will increase, because oil prices will rise and imports of Chinese consumer goods will climb as the global and U.S. economies expand in 2010.

When imports substantially exceed exports, Americans must consume much more than the incomes they earn producing goods and services, or the demand for what they make is inadequate, inventories pile up, layoffs result, and the economy goes into recession.

From 2004 to 2008, the trade deficit exceeded 5 percent of GDP, and Americans borrowed from abroad to consume more than they produced and keep the economy going. They posted as collateral overvalued homes financed on shaky mortgages. When mortgages failed, banks stumbled, home prices tumbled, and retail sales tanked. The economy was thrust into the worst recession in 70 years.

Now huge federal stimulus spending is required to resuscitate business activity. Once the stimulus money is spent, the demand for U.S.-made goods and services will fall, and the rising trade deficit will further tax demand and threaten a new round of layoffs and a second economic contraction. The much feared double dip recession could result and unemployment could rocket past 15 percent, igniting a second Great Depression.

You can read the rest of this article at OnlineJournal

What are the risks of a double dip?
Monday, 16 November 2009 09:25
Shane Oliver

In a note last week, I went through all the reasons why the cyclical bull market in shares has further to run: the economic and profit recovery has further to go; inflation and interest rates remain low; and there is still plenty of cash sitting on the sidelines.

Of course, the outlook is not without risk, so this note looks at the risk of the much talked about ‘double dip’ recession for the US next year. A US double dip would be bad news for the global economy, including Asia and Australia, given the renewed weakness it would trigger in trade flows and confidence.

The first thing to note is that talk of a double dip is common towards the end of most recessions. For example, such talk arose after the early 1990s recession and was also rife in 2003 as the world emerged from the ‘tech wreck’. Usually it doesn’t happen, but of course there are notable exceptions to this, for example:

* the early 1980s traced out a W-shaped pattern in the US, with recession in 1980 followed by a brief recovery in 1981, only to return to recession in 1982;
* the 1990s saw back-to-back recessions in Japan; and
* the US went back into recession in the late 1930s after recovering from depression in 1934, 1935 and 1936.

All of these situations had one thing in common – premature tightening. In 1981, the US Federal Reserve (the Fed), led by Paul Volker, raised interest rates aggressively to squeeze out inflation.

In the 1990s, Japan tightened fiscal and monetary policy before recovery became sustainable. Similarly, in the mid 1930s, US authorities moved to raise tax rates and tighten monetary policy (via tighter bank reserve requirements) before a sustainable recovery had taken hold.

Normally fears of a double dip prove unfounded. A range of factors are being cited this time around as potential drivers of a double dip in the US economy next year including: monetary and fiscal policy tightening too early; a US dollar crisis; rising unemployment cutting into consumer spending; the banking system being too weak to lend and potentially being hit by more shocks; households being too weak to borrow; the potential for another oil-price-driven energy crisis; and the ‘mother of all carry trades’ that will soon come crashing down. I will now address the main double dip drivers in turn.

You can read the rest of this article at Smart Company

World at Risk of ‘Double Dip Recession’
by Stephen Long

A senior OECD official says the global financial crisis is far from over and the world faces a serious risk of another credit crunch and a double dip recession.

Adrian Blundell-Wignall is the deputy director of financial and enterprise affairs at the Organisation for Economic Cooperation and Development (OECD).

In an interview with ABC Radio’s PM two years ago, Dr Blundell-Wignall warned there was a giant rolling bubble of excess liquidity moving from market to market, inflating asset prices.

He warned unless the problems causing it were addressed, it would eventually burst with devastating consequences. And it did.

Dr Blundell-Wignall – who stresses these are his personal views and do not necessarily reflect those of the OECD member states – says the lessons of history are clear.

First, guarantee bank deposits and funding. Second, remove the toxic assets from the banks. Three, recapitalise the banks. But he says the world has ignored step two.

“Did we remove the toxic assets from the balance sheet of the banking system, anywhere? No, nowhere,” he said.

Instead, he says, governments and regulators have conspired in the use of a magicians’ sleight of hand to hide the toxic mess.

You can read the rest of this article at Global Research

Leave a Reply

Your email address will not be published. Required fields are marked *