8 Problems That Could Trigger a Double-Dip Recession
Stock market prices spiraling downward and treasury baldly needs refueling, this is clear message sent; the highly anticipated economic recovery is in jeopardy, just how bad is the outlook? In the aftermath of bleak second quarter, analyst and experts are still divided about the like hood of a double-dip recession. With every report, it is becoming clearer that the economy is steadily losing ground.
The economic sourcing of course is being spearheaded by same old familiar cast of characters. A pale labor market, a skeptical consumer base, a stagnant housing industry and a global debt servicing crisis that threatens to overwhelm the national governments. If deterioration even one of these categories continues, it may trigger a double-dip recession, double dip recession as loosely defined as period during which a recovery is interrupted by an economic contraction, usually in form of negative GDP growth.
Analyst and experts said that the possibility of a double dip can still be avoided, as what John Ryding, co founder of RDQ Economics said, ” Double-dip scenario are quite prevalent as of the moment…… but I find the situation very similar to the last two so-called jobless recoveries where feelings of double-dip constantly bubbled up to the surface but never materialized.”
A professor at the University of Maryland’s Robert H. Smith School of Business, Peter Morici is less optimistic, He said that the possibility of a double dip is at least 50 percent. “What is going to happen here is either the economy is not going to collapse or it’s going to avalanche. Because once you start cycling down, it will develop momentum of its own. And if it goes down a second time, then it becomes very difficult to recover” he added.
For most capitalist and investor, if the double-dip takes place would be a throw back to 2008, with a floundering economy punishing stock returns. Lipper’s research manager for the United States and Canada say that the Dow Jones industrial average could touch 9,000 by the close of 2010. “Is it reasonable to expect it? I think it is reasonable to put some odds on it,” he say.
With that in mind, U.S. news examined eight factors which, given the right conditions could send the U.S. economy and financial markets to its knee.
1. Unemployment. Recession aftermath wiped out Eight million jobs, the lackluster labor market has perhaps been the biggest thorn in the side of sustainable economic recovery. June’s job report will likely to dampen the mood even further.
2. Housing. 2009 when President Obama introduced a for the first time home buyer tax credit worth $8,000 that was later extended to any qualified buyers who signed a sales contract by April 30, 2010. The tax credit, just like any other stimulus programs, has expired, left many experts wondering whether or not the upsurge in home buying will continue.
3. Expiration of Stimulus. President Obama’s first act as president was to authorize a massive stimulus package worth $787 billion. It includes a number of provisions that were intended to help jumpstart the nation’s economy. Some economist is concerned that the stimulus plan is the only thing driving GDP growth in the United States.
4. Spending Cuts. The latest G-20 summit, countries from around the world pledged to cut their deficits overtime. Everyone agrees that it is a noble goal. But experts are torn apart over when it’s appropriate to begin cutting expenses. Many European countries, most notably Greece and Spain have already exercise austerity measures because of their enormous budget deficits. Here in United States, deficits hawks voted down a bill last week that would have extended unemployment benefits and offered some aid to state and local governments.
5. Tax Hikes. Experts and analyst say it is not a question of whether taxes will go up in the United States; the correct question is when, The Bush tax cuts will expire at the end of the year. If it lapse, certainly, taxes will go up.
6. Consumer Confidence. A report from Conference Board shows that consumer confidence is plummeting. Last June 2010, the group Consumer Confidence index dropped by nearly 10 points, its second biggest one month decrease in a year. The report also shows that consumer’s assessment of their current situation and their future job prospects are turning increasingly negative. This has touched off concerns that a skeptical consumer base could stand in the way of a recovery.
7. Consumer Spending. Poor consumers’ sentiment generally translates into stagnant spending level. Recent data from the Commerce Department suggest that American are dialing back their spending and tucking more money in their saving accounts.
8. European Debt Crisis. As of present, the European Union faces the most imminent sovereign debt threat. Countries like Portugal, Spain and Greece have all seen their debt downgraded in recent months. Greek debt is now valued at “junk” status. To calm fears throughout the world that Greece could potentially default on its debt, members of the union have set up $1 trillion bailout fund. But this amount does not guarantee that countries like Greece will be able to fix their budget.