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Thursday
Nov042010

Chris Price “Double Dip Recession?”

Chris Price, Director of Broker Dealer Relations at Shurwest Financial Group defines the term “Double Dip Recession.” He then talks about what alternative strategies advisors can explore and why an annuity can be a useful option.

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Michael P. Tison, Business Journal The broad range of economic data reports indicates that the pace of the recovery has slowed in recent months. It's not that unusual - recoveries are typically uneven across time and across sectors. The current slow patch does not necessarily mean that we're headed toward a double-dip recession. However, the downside risks to the growth outlook have increased.

From the beginning, this recovery was expected to be gradual.

Downturns caused by financial crises tend to be much more severe and longer lasting than typical recessions, and recovering from them takes longer. You're simply not going to get the strong snap-back from pent-up demand for homes and new cars. More troublesome, we need much stronger economic growth - real gross domestic product (GDP) growth on the order of 5 percent to 6 percent for several quarters - in order to recoup the 8.5 million jobs lost in the downturn (plus, over time, absorb the continuing stream of new entrants to the labor force). The unemployment rate is expected to remain elevated for a number of years.

Two-Pronged Recession?

What might cause a double dip? There are three possibilities:

* An adverse shock to the system (such as a major natural disaster or oil prices moving above $100 per barrel).

* Bad attitudes (by which is meant expectations of a further downturn that could become self-fulfilling if consumers increase savings and firms stop hiring).

* A policy mistake (the Federal Reserve increases rates too early or taxes are raised too soon).

Fed Chairman Ben Bernanke is an expert on the Great Depression and the lessons it contained - so the Fed is unlikely to tighten policy anytime soon. In fact, the Fed is considering more quantitative easing.

The prospects for further fiscal stimulus are slim, given the public mood against large budget deficits. On the other hand, fiscal belt-tightening, while well intentioned, would extend the recovery timeline.

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