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Commentary

Several factors point to double-dip recession

Steve Chiotakis Jun 11, 2010
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Commentary

Several factors point to double-dip recession

Steve Chiotakis Jun 11, 2010
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With May’s employment picture so tepid, some fear a jobless recovery could turn into another downturn. Former Labor Secretary Robert Reich says the likelihood of a double-dip recession is now close to 50/50. “The May jobs report shows there’s not enough oomph in the economy because consumers don’t have the dough,” he says. Only 41,000 private-sector jobs last month, but according to Reich, we may need at least 100,000 just to keep up with population growth.

Reich also says the economic boosters we currently rely on are running out: 75 percent of stimulus has been spent and the Fed is worried that zero interest rates will cause more inflation down the road. Some economy-watchers were hoping U.S. exports would give recovery a boost, but with uncertainties in Europe promoting the dollar as a safe haven, exports have become more expensive.

Despite recent positive news of slow but steady economic growth from Fed Reserve Chairman Ben Bernanke and others, Reich says it’s not enough. “In a typical recovery, we would expect far better. And we’ve fallen into a far deeper hole than in a normal recession, so the recovery has to be much bigger.”

So why is this recovery so different? “Most recessions are caused by the Fed overshooting in its efforts to control inflation and raising interest rates to high,” Reich says. “So it’s pretty simple for the Fed to reverse course, cut rates and get the economy back on track. But the Great Recession was caused by the bursting of a giant housing bubble, which directly reduced the value of most people’s biggest assets. Consumers can no longer use their homes as ATMs.”

With so many factors working against a recovery, Washington is focusing on long-term deficits, which will get worse if the recovery stagnates.

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