WP_Post Object
(
    [ID] => 5992
    [post_author] => 28822
    [post_date] => 2009-12-17 16:41:07
    [post_date_gmt] => 2009-12-17 15:41:07
    [post_content] => The latest economic data from the United States is encouraging. Consumption has begun to grow, housing sales are expanding, new orders are up. Even unemployment has already begun to decline, to 10%, well before any analysts had forecast.

But a look at history shows that this may be a place that we have been before. In the mid-1930s, the US economy showed signs of recovery from the deep recession that followed the financial crash. Unemployment began to improve, businesses were recovering and the country moved out of deflation territory.

It was at that moment that fears of bottled-up inflationary pressures and high government deficits, along with widespread speculation in commodities markets, began to dominate the public debate. Monetary and fiscal authorities began to tighten policy: the Fed raised reserve requirements by 50%, and Congress cut public spending. The result was a plunge back into recession, with unemployment reaching 20%. Recovery to normal growth, employment levels and even asset prices was postponed until after World War II.

What lessons does this situation have for us? The conditions are similar: incipient recovery, commodity speculation, fears of deficits and inflation in the future. Many of these fears are justified. Clearly, we can´t afford to ignore the budget deficits that in many countries have topped 10% of GDP. Debt levels look precariously high in the coming years, and more massive stimulus is clearly not an option from the fiscal side.

It is on the monetary side where authorities might do well to apply the lessons of the 1930s. While the credit crunch continues and GDP growth looks to be below potential in the future, central banks would probably be well advised to keep money conditions easy as long as they can. The US economy is still not out of the woods, and the double-dip or “W” recession for the US economy cannot be ruled out as a possible scenario.
    [post_title] => Double dip in the USA?
    [post_excerpt] => 
    [post_status] => publish
    [comment_status] => open
    [ping_status] => open
    [post_password] => 
    [post_name] => double-dip-in-the-usa
    [to_ping] => 
    [pinged] => 
    [post_modified] => 2023-12-13 13:43:02
    [post_modified_gmt] => 2023-12-13 12:43:02
    [post_content_filtered] => 
    [post_parent] => 0
    [guid] => https://economy.blogs.ie.edu/?p=5992
    [menu_order] => 0
    [post_type] => post
    [post_mime_type] => 
    [comment_count] => 8
    [filter] => raw
)

The latest economic data from the United States is encouraging. Consumption has begun to grow, housing sales are expanding, new orders are up. Even unemployment has already begun to decline, to 10%, well before any analysts had forecast.

But a look at history shows that this may be a place that we have been before. In the mid-1930s, the US economy showed signs of recovery from the deep recession that followed the financial crash. Unemployment began to improve, businesses were recovering and the country moved out of deflation territory.

It was at that moment that fears of bottled-up inflationary pressures and high government deficits, along with widespread speculation in commodities markets, began to dominate the public debate. Monetary and fiscal authorities began to tighten policy: the Fed raised reserve requirements by 50%, and Congress cut public spending. The result was a plunge back into recession, with unemployment reaching 20%. Recovery to normal growth, employment levels and even asset prices was postponed until after World War II.

What lessons does this situation have for us? The conditions are similar: incipient recovery, commodity speculation, fears of deficits and inflation in the future. Many of these fears are justified. Clearly, we can´t afford to ignore the budget deficits that in many countries have topped 10% of GDP. Debt levels look precariously high in the coming years, and more massive stimulus is clearly not an option from the fiscal side.

It is on the monetary side where authorities might do well to apply the lessons of the 1930s. While the credit crunch continues and GDP growth looks to be below potential in the future, central banks would probably be well advised to keep money conditions easy as long as they can. The US economy is still not out of the woods, and the double-dip or “W” recession for the US economy cannot be ruled out as a possible scenario.