Is The World Going to Experience a Double Dip Recession?

Practically every piece of economic data that has been released over the past month or so says the same thing - the tepid economic recovery is starting to slow.

Factory orders are falling. Retail sales are dropping. The job market is not improving. Home sales are down.

When the “Great Recession” finally came to an end (technically speaking), many people were of the opinion that economic growth would soon start to accelerate throughout the world.

“We’ve weathered the worst storm since the Great Depression”, many people thought, “And now it’s time to grow again.”

However, the tepid economic recovery seen in the first quarter of 2010 is quickly petering out, leading many to believe that the world is soon going to be engulfed in a “double dip recession”.

When the “Great Recession” was finally starting to come to an end, many people openly feared the possibility of a “double dip recession”. It would be a doomsday scenario, they said. Maybe we’ll have strong economic growth, maybe we’ll have a tepid economic recovery, but please, no double dip recession.

The problem facing the world is that so much money was spent re-inflating the global economy during the “Great Recession” that there is practically no money left. Many bullets were fired from December of 2007 through to the end of 2009, and many countries are now simply out of ammunition.

With worries about growing national debt loads and eye-popping deficits on the rise, politicians simply do not have the go-ahead to spend their way out of another recession. In fact, they are going in the exact opposite direction, implementing austerity measures to help bring their deficits under control. You are seeing this play out in the UK, Spain, Greece, etc. Even politicians in the United States are talking about cutting spending in order to bring the deficit under control.

Stagnant job growth, falling wages, falling home prices and rumored austerity measures have people drawing a comparision between 1932 and 2010. The worry is that the world is about to fall into a deflationary depression (or that it is already in one). A number of economists are arguing that the world needs to keep spending and NOT implement harsh austerity measures, but their pleas are falling on deaf ears.

There are a number of very challenging issues and potential economic powder kegs that need to be dealt with. Europe is still a mess. Many US states are currently facing massive budget gaps, including California and Illinois, which are both currently in very dire straits. Many countries are going to be implementing dramatic spending cuts and tax increases, which will be sure to snuff out any type of short-term economic growth. Jobs that were lost during the “Great Recession” are simply not returning in many major economies.

With worries about the economy on the rise, the “double dip recession” is likely to become a self-fulfilling prophecy. Businesses aren’t hiring and people aren’t spending, which certainly isn’t good for the economy.

It will be interesting to see how this all plays out over the next year or two. I can’t even begin to imagine the amount of political unrest throughout the world if another deep recession presents itself..

Filed under: The Economic Meltdown