Economist warns of double-dip recession(I could have told you that)

Ok, it was actually kinda funny that I was discussing this with my friend last afternoon in his dorm. I was saying how despite what DC and the prez are saying another serious dip in the economy is not off the table. In fact I went as bold as saying a depression is still on the table (and jokingly added that I was glad I was still in school unlike most of my high school friends who are either going to grad school now or trying to find work). He asked why and my laymans explaination (because I'm not a fucking economist and don't ever plan to be one) was that the thing that happened last fall caused a lot of blue-collar workers to lose their jobs, people making 30-80/90k a year. This next round of layoffs coming could potentially hit the 100-250+k crowd VERY hard. And if those people start defaulting on loans or house payments and go into foreclosure, last September will seem like a good time in the American economy. Here are some excerpts from the Financial Times article.

Speaking at the Sibos conference in Hong Kong on Monday, William White, the highly-respected former chief economist at the Bank for International Settlements, also warned that government actions to help the economy in the short run may be sowing the seeds for future crises.

Are we going into a W[-shaped recession]? Almost certainly. Are we going into an L? I would not be in the slightest bit surprised,” he said, referring to the risks of a so-called double-dip recession or a protracted stagnation like Japan suffered in the 1990s.

“The only thing that would really surprise me is a rapid and sustainable recovery from the position we’re in.”

The comments from Mr White, who ran the economic department at the central banks’ bank from 1995 to 2008, carry weight because he was one of the few senior figures to predict the financial crisis in the years before it struck.

Mr White repeatedly warned of dangerous imbalances in the global financial system as far back as 2003 and – breaking a great taboo in central banking circles at the time – he dared to challenge Alan Greenspan, then chairman of the Federal Reserve, over his policy of persistent cheap money.

On Monday Mr White questioned how sustainable the signs of life in the global economy would prove to be once governments and central banks started to withdraw their unprecedented stimulus measures. “The green shoots are certainly out there – the question is what kind of fertiliser is being used on them,” he said.

Worldwide, central banks have pumped thousands of billions of dollars of new money into the financial system over the past two years in an effort to prevent a depression. Meanwhile, governments have gone to similar extremes, taking on vast sums of debt to prop up industries from banking to car making.

These measures may already be inflating a bubble in asset prices, from equities to commodities, he said, and there was a small risk that inflation would get out of control over the medium term if central banks miss-time their “exit strategies”.

Meanwhile, the underlying problems in the global economy, such as unsustainable trade imbalances between the US, Europe and Asia, had not been resolved, he said.

Also present at the Sibos conference was Joseph Yam, who is stepping down as chief executive of the Hong Kong Monetary Authority after 16 years. He told delegates of the myriad “challenges” facing those working for greater stability in the financial sector.

In a hard-hitting address, Mr Yam said that large banking profits and staff bonuses led to lower financial efficiency and contributed to the financial crisis.

Mr Yam is tipped to become an adviser to the People’s Bank of China, the country’s central bank, after he leaves his post next month.

He said there was a conflict between the private, short term interest of financial groups to maximise profits and the public interest of effective financial intermediation that provided support to the economy. “This conflict has not been talked about much, if at all, even in central banking forums,” he said.

How comforting...