Recession Journal Part IV: The Double-Dip Trip
Have you ever been broke as Jack's magic beans?
You know, broke as when said beans dropped on the floor because he brought home magic beans instead of food?
Have you ever been that hard up for cash but anticipating a reprieve?
Oh you have.
Okay, well, do you remember how you felt when that direct deposit finally hit or you heard that the check really was in the mail? You felt better right?
Do you remember the euphoria of going from broke to liquid, if only temporarily, and did the money start to burn holes in your pockets on account of you spending it already in your mind before you withdrew cash, wrote a check or swiped a card?
If you're familiar with these questions and can answer them honestly then you are a living breathing symbol of the economies of 1980-83 and 2007-2010.
Let me explain. For the past 18 months or so, most of us have "felt," broke, if only broken in spirit by the slew of continual bad news. In point of fact a great number of us were even broke literally if we or someone on whom we depended loss their job or home.
But now, oh but now folks, we have a potential reprieve — that's the good news. As of the start of September, everything from consumer confidence and expenditures, oil prices, retail sales and industrial output capacity is moving in a positive direction.
Financial market indices, as a result are up, buoyed by the psychological boosts these numbers bring. The S&P 500 index, for instance, hit an 11-month high the week of September 7, 2009.
And even the one down arrow is shaping out to garner a big thumbs-up as a recently-released Labor Department jobless claims last week fell to the lowest level since July.
But should we start spending in our minds now? Should we stimulate the economy and not let the terrorists win now?
Well that's up for debate but the truth is that we still don't know if a lift out of our lovely recession will be a “V” recovery for victory over being broke as beans or a ‘W” recovery — as in wait and see because we’re not out of the woods yet. Who knows, maybe we might even be in for a VW recovery. Wouldn't that bug you out. Marinate and then laugh if you care to.
So my good people, the "VW" or just "W" recovery, represents an up-down-then-up again recessionary trajectory, one that despite current indicators could be in the offing.
What to do?
Well, in a cursory web search using the search terms "Double-Dip Recession," I found Richard Marcus, associate professor of managerial economics and finance at the University of Wisconsin-Milwaukee and I knew that school was in.
And I knew that he has a handle on such things as money and the like. And I knew that he would likely pick up the phone himself and given the often genteel mannerisms of fly-over state residents, I knew he would actually talk to me if I explained who I was and why I was calling and that his work would help further an eventual point that I would be getting to.
Dr. Marcus likens the current economic situation to the extended double-dip recessionary period of 1980 to 1983. Back then, as it is now, there was major government spending and the recession was exacerbated by a severe credit crunch as well as monetary policy from the Federal Reserve that made the downturn more protracted.
Over static on my cell, Marcus posited that if forecasters are to use history as a guide, the 1980-83 downticks turned around with sustained spending, a tax cut and more “helpful monetary policy” and that nowadays if we want sustained change we should act accordingly.
Marcus says that while there is every indication that the current recession will soon be over, this economy is sort of like a swimmer underwater that comes up from air and then goes below again, only to come back up.
I like that he used wide-open metaphors that could apply to dips. He was doing my bidding (insert cartoon villain laugh here).
“I’d said before that I thought there’d be some upturn but I also said that the period 2007 to 2010, will likely take as long to right itself as that time in the 1980s,” Marcus told me. “This is because you have a tax increase that will kick in to slow the economy and eventually even $800 billion in stimulus money will teeter out. Plus the Federal Reserve has doubled the monetary base and they have to be more restrictive.”
Indeed despite positive economic data, the government’s current fiscal and monetary bend and that of the early 80s are two sides of the same coin in that policies in both eras seem, as Marcus puts it, “contractionary in nature.” Plus Marcus added that he expects overall unemployment to continue to rise, “likely going to 10 percent or above before it’s all over.”
And now back to you folks. How do you feel? Do you feel confident? Are you ready to pick up those broken beans and throw caution to the wind, take some risks, buy some goods, services or memories?
Or are you forever changed due to the emerging consumer ethos of frugality, caution and selectivity as the country emerges from the most pervasive downturn since the Great Depression?
<>Well consider the thoughts of yet another economist, Nouriel Roubini, from NYU, whom I probably could not have reached by phone to talk to in a short period of time even if I had one of those long-reaching thingamobobs that grab objects even while you're sitting down.
Roubini is known in many circles as “Doctor Doom,” and he has said that going forward, even if the recession ends, there might not be enough spending in this or other countries to offset the wicked drop in consumer demand from "over spenders" in the United States and Britain.
Yes the U.S. and U.K., which in recent years have become both home to some of the world’s most conspicuously consuming people, and also two of the countries hit hardest by all this crunchy credit.
So if you're thinking that a turnaround is here and your money is burning a hole in your pocket and you want to spend as you did in headier times, think again, double dip yourself before you trip yourself.
Whether the recession is finally over or not, remember when you were broke as a bean and remember how you felt.