AND, UNLIKE RONALD REAGAN....

The dreaded double-dip recession (Kurt Brouwer, 7/14/10, Fundmastery Blog)

This chart shows (blue line) the probability of a recession. As short-term rates rose in 2006 and 2007, the blue line went up indicating the probability of a recession was getting higher. Now, the probability of recession is low, close to zero actually. That is, no recession in sight according to this indicator.

Now, before I get flamed in the comments, I need to make one thing clear. The economy is not good now. High unemployment, low business confidence and many other factors suggest the economy is slowing.

Though painful, a sluggish economy or even a double-dip recession is not the end of the world. The last double-dip recession happened in the period from 1980 to 1982 when Fed Chairman Paul Volcker raised interest rates way, way up. There was a mild recession in 1980 and then, shortly thereafter, a much steeper recession. Once we got through the second recession, the economy began a long and strong economy recovery that lasted for many years.

We have already suffered through a steep economic downturn. If we do enter another recession, it is likely to be mild. I do not think a double-dip recession is likely. Normally, before a recession begins, the yield curve flattens or even inverts such that T-bills have higher yields than T-bonds. We are not even close to that now and, with T-bill rates at essentially zero, a flat or inverted yield curve is impossible unless you think Treasury bonds are going to zero.

Nonetheless, if enduring a double-dip recession is what it takes to usher in a long period of economic growth, then that would not be a bad tradeoff in my view.

...even the UR didn't raise taxes during this recession.

Posted by Orrin Judd at July 15, 2010 5:35 AM