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Expert cheat sheet: All you need to know about double dip recession

Expert cheat sheet: All you need to know about double dip recession
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First Published: Wed, Jul 07 2010. 09 48 AM IST
Updated: Thu, Jul 08 2010. 12 41 AM IST
Welcome to the second installment of our expert cheat sheet series - which condenses nuanced, complicated subjects into ten easy-to-read bullet points. In Internet speak, we give you the tl;dr proof version. (Too long didn’t read)These are essentially a quick, easy way for you to sound knowledgable on topics in the news, or that are bound to come up in conversation. This week we give you ten key points about double dip recession, which will ensure that you can hold your own in any conversation about it - even if you have no idea about economics in general:
1.If your boss wants an opinion about the double dip and you think that it has something to do with the number of times a tea bag is dunked into a cup of hot water, then it is you who are in hot water.
2.The double dip is the return of recession later this year as the fragile global economic recovery we have seen in the past 12 months shatters.
3.Economic recoveries come in various shapes. Just run your eye along the following alphabets from left to right. There is the V-shaped rebound that countries such as India and China have experienced. Then there is the L that Japan has lived with over the past two decades: a collapse in output and then long stagnation. The double dip is described as a W-shaped recovery, when a fall in output is followed by a quick recovery and then another fall, all in quick succession.
4.In short, the double dip is more likely in the US and Europe rather than in our part of the world.
5.The main problem is as follows. The Western financial crisis was followed by the worst economic recession since the Great Depression. Banks teetered on the edge, companies stopped investing and consumers were more wary of spending. So private demand collapsed. Governments had to step in. They bailed out banks, gave consumers incentives to spend and also increased their own expenditure. These governments built up the biggest peacetime pile of debt and deficits because of all this fire fighting, which has shaken investor confidence. Think Greece.
6.There is pressure on governments to cut spending and increase taxes. Policy makers call it an exit policy. Many European governments have started doing this. New British Chancellor of the Exchequer George Osborne did it in a recent emergency budget. Barack Obama’s budget director has quit. Some say that he put in his papers because the Obama administration has not been moving quickly enough to cut its deficit.
7.There is now a raging battle in the US between those who are calling for austerity and those who want another stimulus package for economies --- the Austerians and the Stimulants. The former say that it is time Western governments start tightening their belts as the recovery in private demand is on track. The latter say it is too early since unemployment is still almost in the double digits and consumer confidence is fragile.
8.The Austerians fear a resurgence of inflation if central banks keep interest rates low while the Stimulants say that deflation is the main threat.
9.The Austerians point to Japan in the 1990s, when a burst asset bubble brought a dynamic economy to a grinding halt despite large government deficits and zero interest rates. The Stimulants point to the US in the late 1930s, when a premature tightening by the government sent a recovering economy back into recession.
10.India has reason to worry because we live in a global world. Another painful recession later this year could hit companies and markets here. It’s not a certainty, but there is enough reason to fear a global double dip.
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First Published: Wed, Jul 07 2010. 09 48 AM IST