# News Can we avoid a double dip recession?

1. Aug 4, 2011

### SixNein

The economist has a good article on this topic:

http://www.economist.com/node/21525405

As I was saying https://www.physicsforums.com/showpost.php?p=3423219&postcount=1", there was damage being done by the debt debate. On one hand, a political party is now willing to take our economic future hostage for political gains. On the other hand, there is no willingness to spend in the short term and do long term planning on debt, and uncertainty remains over the actions of the supper committee on everything from taxes to spending cuts. And the national agenda has been changed from recovery to debt even though our growth is extremely weak.

so are we going to avoid a double dip recession? I'm not sure, the economy was so fragile with Europe markets already in distress, and the new uncertainties in America may be enough to push the economy right off the cliff.

On the bright side, the Fed might be able to take some limited actions.

Last edited by a moderator: Apr 26, 2017
2. Aug 5, 2011

### SixNein

Perhaps people need directions:

Democrats' Position -----------------------> Reality <------------------------ Republicans' position

3. Aug 5, 2011

### Ivan Seeking

Staff Emeritus
I think this has far more to do with Europe and Japan than it does the debt crisis.

Our debt has nothing to do with the immediate problems. The "crisis" was the debt ceiling issue, which was artificial and facilitated by the tea party. But it is significant in that it limits our ability to respond to a severe recession.

From what I understand, the chances of a double-dip are no worse than 50/50, so I'll assume the glass is half full unless and until convinced otherwise.

4. Aug 5, 2011

### gravenewworld

Italy gets into big trouble and defaults, the Eurozone collapses economically, and the US economy tanks along with it while the EU falls apart. Riots over food and the restless unemployed spread everywhere across the globe. Anger at the West increases over what are perceived economic abuses that pushed the world into a terrible recession leading to war. Dire times indeed.

5. Aug 5, 2011

### Ivan Seeking

Staff Emeritus
You might want to get out and get some sunlight.

6. Aug 5, 2011

### SixNein

Europe is playing a significant role, but America is playing a significant role too.

According to the BEA, "Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 1.3 percent in the second quarter of 2011, (that is, from the first quarter to the second quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.4 percent."

The debt ceiling debate creates uncertainty and doubt over the possibility of stimulus. And current programs are set to expire at the end of this year, so we will see a shrinkage of GDP next year if nothing is done.
[PLAIN]http://web.epi-data.org/temp727/gdp_debt_ceiling.JPG [Broken]

In addition, the debate set a new precedent on holding the debt limit hostage. Republicans are calling it a template to be used in the future. So we may be about to repeat this **** over and over again.

The uncertainty over the debt limit debate is not over because of this super-committee; instead, the uncertainty remains over spending cuts and tax increases. Will the cuts be up front or on down the road, and where will these cuts be made? What will taxes be on and how much? Members could also fail to agree and the triggers kick in.

The result of the debt limit debate was disappointing to say the least. There was no long term objectives to control the debt, and there was no short term spending to stimulate the economy. The only real accomplishment was sending a message to the international community that our political system is now dysfunctional and injecting loads of uncertainty into a already fragile market.

All of this hurts confidence that America is on the road to recovery. Can America even take care of its long term debt problem? Can it do stimulus right now for the economy? The answer to both appears to be no.

Europe is also going through similar problems in the sense of failed political leadership that puts way to much uncertainty into the market.

Last edited by a moderator: May 5, 2017
7. Aug 5, 2011

### Ivan Seeking

Staff Emeritus
No doubt, the latest report and the revised report from the first quarter were terrible news.

Last edited by a moderator: May 5, 2017
8. Aug 5, 2011

### SixNein

What breaks my heart was this performance was done while our economy was so fragile. The economy has been showing negative signs for a while now, and politicians jump up and decide to threaten our obligations, and they dragged it out to the very last second. And they are now saying it was a great idea, and they are going to do it again.

They are suppose to be inspiring confidence right now.

9. Aug 5, 2011

### Staff: Mentor

:blink: Do neither of you believe that a high and yet rapidly growing debt puts any kind of drag on the economy?

What is your threshold debt level that you believe would be an "immediate problem" and what is your time horizon for when we should start caring about the debt?

10. Aug 5, 2011

### Lapidus

Last edited by a moderator: Apr 26, 2017
11. Aug 5, 2011

### Staff: Mentor

Neither of those posts answer my question and in any case, we require ACTUAL citations in this forum.

If you can always spend your way out of debt, why doesn't Greece do it?

Last edited: Aug 5, 2011
12. Aug 5, 2011

### Lapidus

If you have read my post I mentioned that one key element when dealing with deficits are the interests rates. What do you conclude?

And again, when the governments spends in a recession it smoothens the downturn and might again increase the GDP and by that keeps the debt/ GDP ratio stable.

Have you guys ever thought about how severe the down-spiraling of the economy would be without the government and the automatic stabilizer that it provides?

13. Aug 5, 2011

### WhoWee

Tea Party discussion aside - I was in your camp with the 50/50 until the world wide market drop yesterday COUPLED with a slight dip in gold and (most important) a drop in oil prices. The oil price drop signals a drop in consumption is expected which means a further slow down in the economy. I'm not discounting any of the other leading indicators (could improve in September as unemployment adjusted down to 9.1%) - just focusing on the oil price for now.

14. Aug 5, 2011

### WhoWee

Every new business venture my known associates have started or participated in over the past 24 months have been connected guided or controlled by the Government is some manner - whether insurance/finance, construction, manufacturing, medical, or housing. All of them regret their decisions for a variety of reasons.

The insurance (Medicare) regulations are reaching the point of ridiculous, the (green) construction costs more, is less profitable and slow, manufacturing in Empowerment Zones has unique challenges, HIPPA and healthcare reform (planning and implementation) is a nightmare, and HUD is something that allows you to make a stable income - but you feel like part of the problem. Please label the entire post - IMO.

15. Aug 5, 2011

### WhoWee

The interest rates are currently (artificially) forced to near 0% and growth projections exceed the current actual - yet the debt trajectory is over $20Trillion with Congressional and Presidential approval. To your point - what will happen to the debt trajectory when the interest rates return to normal levels -$28Trillion(?) - what's your estimate?

16. Aug 5, 2011

### Staff: Mentor

I mostly agree with the main economic points of the article, but disagree with a political one:
I agree that continuing the payroll tax credit and extending jobless benefits would be good - and I agree that that has little to do with the debt ceiling debate. But I think the writer is being naive: these things, particularly the jobless benefits are likely to be extended when we get there.
I agree that spending shouldn't be cut much in the short term, but only in the very short term: a year, certainly no more than two. And I don't know what they mean by "medium-term", but I think after about two years, we need some real and substantial spending cuts. And I also wholeheartedly agree that entitlements are the biggest spending problem. "Tax reform" is vague and I support a form of tax reform (simplification, elimination of a lot of deductions) after about 2 years -- heck, some even now! - but I suspect my vision differs from theirs.
Agreed.
I agree that uncertainty is a problem for investment, but I think the author is missing an obvious reality: The debt ceiling debate didn't create the uncertainty! ...which is why the end of the debt ceiling debate didn't end the uncertainty. Sure, we got a new debt commission, but we had one last year too! The debt is rising and it needs to be dealt with sometime soon, otherwise we're headed for total collapse - Greece style. IMO, that is the type of uncertainty a businessman is looking at when trying to decide whether to build a new building (with a payback of 10 years or more on the investment jumping to 20 if the economy remains in the tank?) or even replace a dying piece of equipment (why bother if the economy is just going to collapse in 5 years and you're just going to pawn it anyway?).

So I consider it a positive thing that Republicans made people consider the elephant in the room (pun intended), while at the same time am worried that backslapping over reaching an agreement will take the place of going back later and actually making the necessary changes.

Last edited by a moderator: Apr 26, 2017
17. Aug 5, 2011

### ParticleGrl

There is, in fact, an easy quantitative way to get a feel for this drag- look at bond rates. The US real rates on treasuries are negative for everything less than 10 years, and for a brief period yesterday the NOMINAL rate on 30 days was negative. What this means is that the borrowing is not creating the sort of drag you are suggesting right now.

Thats why this idea of "uncertainty" is infuriating- the ONLY thing the market is certain in right now is the safety of government debt. They are lending money at a nominal loss!!

Now, if we were Greece, and our rates were rising (instead of steadily declining, as ours are), we might have to worry about something. But Greece is tied into the eurozone, so they are limited all the way around in their responses to crisis.

18. Aug 5, 2011

### Staff: Mentor

That implies we're paying no interest on the debt - is that what you are trying to say? It isn't true: this year, interest on the debt will be about half a trillion dollars. That's 3.5% of GDP. In other words, a stagnant economy paying 3.5% of GDP in interest could instead be expanding at 3.5% annually - a perfectly healthy rate - if the debt wasn't there.

http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm

And we're currently planning on doubling the weight of this anchor over the next decade.
Confidence is a relative thing. For something that is 100% iron-clad, assured, a tiny, eyelash weight of shakiness is a big deal.

And it isn't like people are buying at low interest because of confidence (implying they would be buying at higher interest if they were less confident) - bond rates are affected by interest rates.

19. Aug 5, 2011

### WhoWee

PG - there is a great deal of uncertainty in the market - we had a worldwide stock drop of 3%(?) yesterday and the DJI is bouncing like a ball today.

Please consider - do you think Treasuries would be in the same position today without QE-2 and downward pressure on interest rates - credit downgrade possibility aside - interest rates will rise at some point. Accordingly, there is uncertainty regarding inflation.

Additionally, the Government held Treasuries (Social Security and Fed) will need to be re-evaluated - won't they? I don't think they'll risk printing more money to replace them - do you?
http://www.cnsnews.com/news/article/fed-eclipses-china-top-owner-us-debt [Broken]

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20. Aug 5, 2011

### ParticleGrl

No, thats not what I'm saying. I'm suggesting that the rates for short-term CURRENTLY ISSUED debt will be negative in real terms (and sometimes nominal terms). Despite issuing new debt, the interest we are paying on the national debt hasn't been climbing that rapidly- compare the debt service projected for this year to 2007. Our debt increased by 50%, the amount we are paying in debt service WENT DOWN.

If people are not confident the US will pay treasuries, they will demand higher rates, thats how markets work. The rates are controlled by the marginal bond purchaser.