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Monday, June 6, 2011

The US Double Dip: It could well be a reality

Initially the experts predicted a V shaped recovery i.e. a fast recovery for the US but then shifted to the left in the alphabetical order i.e. U, a slower path to recovery, but the existing scenario might push them further to the right i.e. to W or double dip. A look at the common economic indicators like unemployment rate, growth rate, rate of inflation or interest rate etc. would tell us that the future is murky. Add to that the increasing clout of countries like China or should we say decreasing impact of US on the global setup is only worsening the cause. The inability of the US to force appreciation of Yuan is a case in point. The usual backers of US like UK, France, Japan are themselves deep into crisis so no help can be expected from that quarter. The world economy discussing “decoupling” shows that the perception is that the US is lonely as well as depleted in its battle with recession.

Now let’s even take the “look inwards” approach. Many banks in the recent past have exceeded the forecasts and posted outstanding results. But amid all the hype and hoopla what some of us might miss is the fact that recovery has been led by the bottom-lines (read cost cutting). It’s a clear indication that growth (if any) would be jobless in nature. Even the QE approach to push up economic activity has few takers. This shows that the sentiments are mostly negative. A prolonged negative sloping yield curve further drives home this point. The tussle between president Obama (who seems to be losing confidence by the day amongst the common people) and the American business bosses (who have already lost confidence) is now out in the open. This is the last thing a recovering country can bear. 
If the recession of the year 2008 was characterized by corporate greed and petty political aims, the 2011 one will be driven by cynicism.

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