Many economists are tickled pink because the U.S. economy shrank at just a 1 percent annualized rate during the second quarter. That was better than the consensus estimate of -1.5 percent. Investors also seem pretty happy and as of this writing the Dow is racing toward 9,300, the S&P is above a 1,000 and the NASDAQ is above 2,000.
That said, I remain a bit of a skeptic. I, too, think the recession will end later this year, but I believe the chances of another recession within three years of the end of the current one are above 50 percent. So much of the current recovery is artificial and motivated by factors such as a 0 percent Fed Funds rate, $8,000 tax credit for first time homebuyers and of course cash for clunkers.
What happens when these inducements go away and tax increases come on top of that? You should put a big red circle around the year 2012.
-AB
Would it be possible to set up an RSS feed for this blog so I can put it in my reader?
Oh, the recession might be over, but the real question is how long will it take to close the output gap. You could very well have a growing economy but a widening output gap.
Sorry about the Brass Elephant.
my God, i thought you were going to chip in with some decisive insght at the end there, not leave it with ‘we leave it to you to decide’.
Excellent. Thanks so much for the post. -Kate