Brave New World

Depression, not recession 02/10/2009

Edward Harrison of Credit Writedowns argues that the world economy, let alone the US, is too weak to begin a consumption led recovery. Government expenditure needs to remain at the current high level for many years to come until the private sector continues to repair its balance sheet. Given that this is poltically unfeasible….

“Get ready because the second dip will occur. It will be nasty: unemployment will be higher and stocks will go lower than in 2009. I am convinced that it is politically unacceptable to have the government propping up the economy as Koo suggests it should. The question now is one of timing: when will the government stop propping up the economy? The more robust the recovery, the quicker the prop ends and the sooner we get a second leg down.”