The Double Dip Recession (W shape for me)

It´s funny how a month and a half later, Mr. Obama starts to talk about an issue that I mentioned in my twitter and in an article at this blog. Even some of my friends made fun of me when I told them about my “W shape recession” or as Mr. Obama calls it “Double-Dip”. But it also makes me proud because the signs that I saw in the past months were indicative that this recovery was partial.

For someone that doesn’t know what a double dip recession is I will say that it´s a problem after the GDP growth back again to negative numbers after a period (usually 1 or 2 quarters) of positive growth. A double-dip recession refers to a recession followed by a short-lived recovery, followed by another recession. The effect that the economy will move back again into a second recession makes the new recovery even more difficult because you have to add the loss of confidence.

Here are the probes of what I said in the pass…

In the Financial Raindrops at Facebook

In Financial Raindrops´s blog.
Even on Financial Raindrops´s Twitter:


The words of Mr. Obama during his nine day trip to Asia were collected in a interview in Beijing by most of the media cover. I took the two best ones.


The FT article is well structured, it starts with the problem using Obama´s quotes, and then it gives some data about the deficit situation. To end the article, the FT concludes with some coverage about China, the “biggest foreign holder of US Treasury bonds”, it's worrying about their investment and makes a comparison of Obama´s trip “as that of a debtor visiting his banker.”


For the Times, they give more information about the debt problem of the US administration “The National Debt has increased about $1.6 trillion on Mr. Obama's watch, and has now topped the $12 trillion mark, bringing it dangerous close to the $12.1 trillion statutory limit”. It also uses an external source, Société Générale, to alert from a future recession in 2010 putting the worse scenario with some previsions “public debt would explode within two years to 105 per cent of GDP in the UK, 125 per cent in the US” and the article ends up with a very pessimistic comparison…”The underlying debt burden is greater than it was after the Second World War”

So if they don´t change the financial system and the pillars on where to support the growth we will end up again in a longer recession. We have seen that during the past US and other countries have been laying their economy in a huge deficit, passing the problem between generations as a “hot potato”, but it´s good signal that Mr. Obama recognize this big problem as the FT article says “It is important though to recognize if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the US economy in a double-dip recession”.

I hope governments and economic institutions starts to approach such a huge problem such as “the underlying debt burden” when nowadays is even “greater than it was after the Second World War”.

Sources:

http://www.ft.com/cms/s/0/ee761ae2-d443-11de-990c-00144feabdc0.html
http://business.timesonline.co.uk/tol/business/economics/article6922325.ece
http://www.foxnews.com/politics/2009/11/18/obama-warns-double-dip-recession/