August 5th, 2011
05:50 PM GMT
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As a child my mother would lure me home from the playground with the promise of a "Double Dip." Now the mere mention of those two words is enough to send me running fast in the other direction.

The term, once synonymous here in the UK with a tasty sherbet sweet, is now a household name for the bitter pill some of the world’s richest economies may soon have to swallow as investors become increasingly concerned about a return to recession.

So what are the chances of a contraction?

Bank of America Merrill Lynch economist Michelle Meyer argued this week that the U.S. is just "one shock" away from seeing its economy shrink.

Investors got a shock of a different nature on Friday with word that the world’s largest economy created more jobs than expected. Markets rallied for about an hour before giving up their losses, a phenomenon often referred to as the "dead cat" bounce.

Despite the buoyant jobs numbers economists like Meyer are becoming increasingly concerned that the signs on the upside are not frequent or significant enough to rule out a contraction later on in the year for the U.S., especially as biting inflation eventually pushes the hand of rate setters at the Federal Reserve.

True, U.S. gross domestic product did increase 1.3% in the second quarter but that was much weaker than anticipated.

The previous quarter’s growth was also sharply revised downwards: from a robust 1.9% to just 0.4%.

And when America sneezes, the rest of the world catches a cold.

If there’s one thing that has me more worried than an anaemic recovery state side, it is the bleak future of the euro zone.

Some 17 countries share the euro as their common currency and through thick and thin (thus far) their leaders have vowed to defend it. The money is used by more than 300 million people and prices more than a quarter of world trade.

But the political will is waning, the bills are mounting and cracks are appearing between those countries setting the economic pace in Europe and those who simply can’t keep up.

The world’s bond markets are worth an estimated $80 trillion, a large portion of which is made up of borrowings issued by euro zone sovereign nations.

Fighting a battle on that scale is expensive, especially when you don’t all see eye to eye.

The French president Nicolas Sarkozy and German chancellor Angela Merkel will late on Friday urgently discuss their options this weekend, presumably from their holiday retreats.

This has left EU Economic Affairs Commissioner Olli Rehn holding "the reins" and even he acknowledges that the euro area must match its political cohesion with equally homogeneous and tough fiscal rules.

Mind you, that’s easier said than done when your cultures are different, your populations are of different ages and crucially, your growth rates are going in the opposite direction.

In 2008, we had a credit crunch, when banks wouldn’t lend to individuals. Now we are seeing a debt crunch when entire countries find it hard to borrow.

It’s hard to say which one is worse. Still, what is becoming clearer is that even if we do avoid a double dip, the gap between economic indicators and expectations is growing and that is why the markets are losing confidence.

soundoff (8 Responses)
  1. Paul Johnston, PhD Economics

    The bailout has been a massive farce by EU Bankers and Politicians in the FRAUD OF THE CENTURY!
    The Greeks, Italians, Portuguese should have never been allowed to have the Euro & are now causing it to fail.

    August 6, 2011 at 5:35 am |
  2. Bonita

    Hey America, we all have bad seasons. But take this as a grade on your character. Your parents wasted their talents and efforts to raise such godless selfish perverted mob.

    August 6, 2011 at 5:50 am |
  3. EM

    Kind of ridiculous that millions of investors and $-trillions of dollars ride on breathlessly awaiting some dry government statistic that should have been 1.6 and turned out to be 1.2; thereby precipitating a massive increase in everybody's blood pressure readings.

    What happened to believing in the fundamentals of individual companies? In simple profit/loss statements? Me-thinks that Warren Buffet does not himself wait for these weekly stats with baited breath. He uses common and good old-fashioned business sense, I'll wager. Do they make money? If yes, I'll buy it, if not, I won't.

    Can it get any simpler than that?

    August 7, 2011 at 7:09 am |
  4. Per Holmlund

    Double dip.

    Perhaps a new normal. Short up turns and long down turns. Or even worse no upturns. Only shorter positive Stock Market up turns to keep the American dream and Wall Street alive.

    Look at the 30 & 10 Yr bond spread. Do you see the Polinomics – Political Economics – 2008 and first half 2007? Main street still in deep water. Deep water that becomes deeper and deeper with the deficit swamp spreading.

    What will SOS – Save Our Stocks – save the market this time? Perhaps it is time to stress test retirement funds. And not fun but the probability for Carter II moving north. "HOPE? Bob Hope! No. Obama." Yesterday it was made as joke. Today just tragic.

    In France they had the three musketeers. In US they have got the three layers: Barack, Joe, Hillary and the political broiler Nancy.

    Yesterday it was the survival of the strongest, today it has become survival of the richest. Markets that some think, like the Japanese once thought, will save the economy are up and employment down. What will it be tomorrow?\" /2010/11/05/thoughts-on-pelosi/

    And now the Europeans are going to fix it – The economy – by fixing The Stock Market. \"Mobilisation politique contre la chute des bourses d'Europe\"

    Look at bank stocks – BoA, Credit Suisse, BNP Paribas, Barclays... – performances all over the world last 12 month. What is it saying about tomorrow? Prosperity and growth or pain and decline? F, f fu...

    Have you seen the fool lifting himself by the hair. If you don´t you can look at politicians lifting the economy by pushing The Stock Market. We will probably have a new 2007 when the smart money in finance went out the back door and the others had to visit the cellar 2008.

    Yesterday: They – ratings agencies – are evil. They lied to us. Today: They – ratings agencies – are evil. They are telling the truth!

    August 7, 2011 at 8:15 am |
  5. Ryan Moore

    The credit rating downgrade is a symptom. The debt is a symptom. The root cause for all of our debt problems is the drive for our politicians to get re-elected. NOTHING WILL CHANGE until we get spending limits on election campaigns and term limits for congress.

    August 7, 2011 at 3:34 pm |
  6. Alex

    I think people need to stop bellyaching over whether it's a double dip or not and just say it is and be done with it. As I noticed in the run up to the last recession, the FEAR of one (and economists spent nearly 2 years in fear of the 2008 recession) is worse than the reality. The world (and America) didn't end the last umpteen recessions. Declare it's one (or at least "probably" one since these things tend not to be officially identified until after they've ended) and start the work of recovering.

    August 8, 2011 at 4:42 pm |
  7. Amit-Atlanta-USA

    The SINGLE BIGGEST CASUALTY of all the brinkmanship taht went on in DESERVEDLY earning the downgrade is a SEVERE BEATING to American confidence, and also the confidence of the world in the US economy as well as its political system.

    The GOP (after booting the Tea-Partyers out!) and Democrats need to resurrect this blown-up confidence, sit across the table and evolve meaningful steps to adapt to evolving world trends.

    Short of that........there's no stopping the downhill slide of this greatest nation on earth!


    August 8, 2011 at 4:44 pm |
  8. icon package

    eYs, you have correctly told


    September 23, 2012 at 1:58 am |

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