Michael Spence, professor at New York University’s Stern School of Business and winner of the 2001 Nobel Prize in economics, believes there's "probably a 50 percent" chance of the global economy slipping into recession. Noriel Roubini disagrees and, given the accuracy of his predictions, that is scary. He says flatly that a recession is coming and that it is a mission impossible now to stop it. The Philadelphia Federal Reserve Bank places the odds at 85 percent of a recession. Peter Schiff, who with Roubini, correctly and accurately predicted the collapse on Wall Street and ensuing recession, thinks one is 100 percent certain.
Bernanke "offered no plans for additional measures to boost short-term growth," in his speech Friday. David Rosenberg, another very savvy economist, says that by 2012, the chance of a second recession is 99 percent. I agree with Roubini, Schiff and Rosenberg, but think we should die trying.
The possibility of the U.S. dipping back into recession has been of particular concern to economists. “I’m quite worried,” Spence explained in an interview in Hong Kong. “A combined downward dip in Europe and America, which is a good chunk of the industrialized economies, I’m quite sure will take down growth in China particularly, and that will then immediately spread to the rest of the emerging economies.”
History is on Spence's side: 9 of 11 recessions since World War II were preceded by periods of growth of 1 percent or less. The American economy is believed to be now growing at just under one percent. A slew of recent economic data indicates the economy is slowing. This Spring, the U.S. economy grew at a rate of only 1 percent.
GDP growth has been adversely affected by weak consumer spending -- which accounts for 70 percent of the U.S. economy -- and high levels of unemployment, economists say. (My own proposals target that spending problem and small and medium sized businesses' immediate needs, but they are probably too late to avoid the double dip.)
Still, many economists hold out hope and in a recent survey said a second recession isn't likely, putting the possibility of such a downturn within the next 12 months at 25 to 40 percent -- but still more than half of Spence's estimate.
Others seem to agree more with Roubini and Schiff, such as Meredith Whitney, who noted "increasing signs" of a double-dip earlier this month. Much will depend on whether our economy is able to gain growth in the third quarter. Two percent is the now the overly optimistic consensus forecast for that quarter, given that the situation is deteriorating so fast. Only large global corporations stand a real chance of doing well enough.
Too, if Europe has a crisis, we will all likely sink into recession. U.S. consumer confidence in early August sank to its lowest since 1980, according to the Thomson Reuters/University of Michigan survey released Friday, even lower than during the last recession!
What will it take to preempt a global downturn? "Bold [immediate] action on both sides of the Atlantic," Spence says.
So what have we got? Next to nothing. No programs, Nada. Even Bernanke is crawled into a shell and has no agenda. Republicans want to cut the deficit. Democrats are scratching their heads.
This is close to Rome burning while Nero fiddled.