Three thoughts: Double-dip threat to the economy?
| Thursday, Sep 17 2009 10:11 PM
Last Updated Friday, Sep 18 2009 12:42 PM
Although there are signs the economy may have turned a corner, some observers are expressing concerns that economic activity could slow again, leading to a so-called “double-dip.” We asked three local business people for their thoughts.
Our question: How real is the threat of a double-dip in the economy?
Daniel Petrey, wealth advisor with Mestmaker & Petrey Wealth Advisors:
The threat of an economic slowdown is a very real threat for several reasons.
First, the United States economy is very dependent upon consumers. Consumers have seen their houses, 401(k)s, investments and pretty much every other asset lose value. Some have lost their jobs, and if they are employed, have replaced their job with one that provides less income.
Needless to say, consumers will most likely not spend as much as they did prior to the economic meltdown.
Second, there is the threat of rising commodity prices. The most likely cause of the rise in commodity prices would be the devaluing of the dollar. The dollar will come under pressure due to the massive amounts of debt we have accumulated in an effort to stimulate the economy.
Geopolitical events could also cause the price of oil to rise.
Third, the excess government debt could lead to higher interest rates, which would also affect consumers’ ability to spend.
John Emery, dean of the School of Business and Public Administration at Cal State Bakersfield:
A severe double-dip similar to that experienced during the Great Depression is unlikely to occur.
By 1936, banks had rebuilt reserves to healthier levels. When the Federal Reserve increased reserve requirements to absorb excess reserves, bank lending contracted, causing a sharp decline in economic activity — a mistake the Fed will avoid this time.
Nevertheless, the economic recovery is still fragile and forces exist that could slow or even temporarily reverse the recovery. These include rising mortgage foreclosures, lingering unemployment, weak consumer sentiment and others. Also, as the economy improves, removing the excess liquidity the Fed has injected into the monetary system will require a careful balancing act between creating inflation and not stifling the recovery, creating a double-dip.
Garro Ellis, financial adviser with Moneywise and registered representative for brokersXpress LLC:
As measured by the Gross Domestic Product (GDP) we are still in recession, and won’t come out of it until the consumer spends more, because two-thirds of the GDP measurement relies on it.
With two-thirds of our economic growth relying on us to spend, we have to ask ourselves, “When will we start spending?” The answer to that question is right in front of us, or right next door. How are you doing? How’s your neighbor doing? How’s your employer doing?
The silver lining is the savings society we seem to have entered into, from a debt-ridden spending society we plunged out of heading into this mess. Once we go through this wash cycle, which should take a couple years, we will begin to see more spending, banks opening up, and an economic growth cycle.
For now, I urge everyone to become part of the savings society and get into that comfort zone, where we should always be.
