Some economists try to find sunshine and rainbows, others search for signs of the coming Apocalypse. Economic data from the last few months leads some to think a double dip recession, where the economy falters, begins to recover, then tumbles again before bottoming out, is starting to become a real possibility. European analysts as well as Wall Street are thinking it might happen, and that the fallout can be just as global.
Second dip claimed possible by Moody’s
Recently, credit rating agency Moody’s released a report, through its research wing Moody’s Analytics, that puts the likelihood of a double dip recession at one in four, up from the previous estimate of one in five. According to the Wall Street Journal, Moody’s has predicted that if a double dip recession does occur, real estate prices could fall a further 20 percent. The prediction is that in that event the real estate market will stabilize in 2012. The economy will even shrink a further 5 percent, according to Moody’s.
Federal Reserve doesn’t see trees of green or skies of blue
The Federal Reserve is not calling for the bubbly to be broken out yet either. As outlined by CNN Money, the Federal Reserve announced after a meeting on Tuesday, August 10, the economy was not recovering as fast as had been hoped and it will take longer than previously estimated for things to return to peak output. The Federal Reserve pledged to purchase more securities from the Treasury, and to keep the federal funds rate near or at 0 percent, but didn’t broach the topic of a double dip recession.
Doom and gloom across the globe
If a double dip recession happens, it can be global in scope. There will be effects of a double dip felt across the Atlantic as well. Given that the trade deficit is wider than ever, there is an indication that America, as a whole, is producing fewer goods for export. That is less cash from foreign markets coming in. With a depressed real estate market, that is not a good recipe for getting out of the recession.
Additional reading
Wall Street Journal
blogs.wsj.com/developments/2010/08/11/moodys-odds-of-a-double-dip-increasing-prices-could-fall-20/
CNN
money.cnn.com/2010/08/10/news/economy/fed_decision/index.htm
