Are We Heading For a Double Dip? Four Basic Perspectives

By Joe Jordan  AUG 03, 2011 2:15 PM

Sometimes its better to analyze the analyses.


Are we heading into a double dip recession or not? The arguments are breaking down into four specific camps. Here are some views from some diverse sources, from the writers at The Onion to Warren Buffett on Bloomberg TV.

The Comically Depressing

The Onion, usually an uplifting and comical faux-news organization, ran a story today about a hypothetical Ben Bernanke, hammered drunk at a bar getting down to brass tacks with local patrons on the grim economic outlook. It apparently had enough validity to get posted by the respected financial blog,

Bernanke, slurring his words as he spoke. "Mounting debt exacerbated—and not relieved—by unchecked consumption, spiraling interest rates, and the grim realities of an inevitable worldwide energy crisis are projected to leave our entire economy in the shitter for, like, a generation, man, I'm telling you.”

Numerous bar patrons slowly nodded in agreement as Bernanke went on to suggest the United States could pass three or four more stimulus packages and "it wouldn't even matter."

The Slightly Scary Fair and Balanced View

The Wall Street Journal, in an attempt to be the voice of reason in times of trouble, provides us with as much optimism as they have reason to give. The article, which extensively references academic and professional economists alike, hardly leaves the readers with a warm cozy feeling in their stomachs.

The good news: It would probably take a significant shock to knock the economy off course, even in its weakened state. The bad news: In the current environment there are plenty of potential shocks to worry about.

Mr. [Kenneth] Rogoff is among those economists who deem a double-dip recession unlikely. But his research also shows that following financial crises, economies tend to grow only fitfully. Viewed in that context, the rough patch that the economy has lately hit shouldn't be a surprise, nor should it be a surprise if there are more of them.

The Downright Negative

Dr. Jeffrey Lewis, writing for, makes his blunt and matter-of-fact message crystal clear when it comes to the US economic outlook: all it takes is one look at the manufacturing sector to realize we are not out of woods yet.

According to the Institute of Supply Management, a trade industry responsible for the Index of Manufacturing Activity, manufacturing confidence found a two-year low in July. The reading was reported as 50.9 percent, off from the 55.3 percent in June. Astute followers of the news will notice that this was the lowest reading since July 2009, which just happens to be the month that economic think tanks declared the recession over.

Whereas any reading over 50 is growth, the index had previously risen for 23 straight months. Now, failing to reach two years of consistent growth suggests that a double dip is on the horizon.

Any way you slice the recent economic report, you will find that it does not paint a good picture for the US economy. Weakness in manufacturing removes hours from employee schedules, reduces demand for the US dollar for international sales of manufactured goods, and will ultimately trickle through every other industry.

The Downright Positive

Legendary investor Warren Buffet threw his hat into the double-dip debate with a beacon of hope for Americans and US bond holders alike. He has reason to believe America will be just fine, that the worse is over, and that it will be construction that will pull us out.

“I would bet very heavily against that,” Buffett told Bloomberg Television’s Betty Liu on the “In the Loop” program today after data showed slowing U.S. job growth. “How fast the recovery will come, I don’t know. I see nothing that indicates any kind of a double dip.”

“Jobs come with demand,” Buffett, 80, said today. “We’re seeing demand a lot of places but we’re not seeing it in the construction field.”

“We will come back big time on employment when residential construction comes back,” Buffett said. The unemployment rate will drop to 6 percent “within a few years,” he said.
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