What About This “Double-Dip” Thingy? [ October 16th, 2010 ] Posted in » Financial Ideas

For the last few months, this term has been thrown around with almost complete disregard for the likelihood of it happening. But first of all, what is it?

It refers to a fairly significant pull-back in the economy, specifically in the major stock market indices such as the Dow and the S&P 500, as well as consumer sentiment about the near future, very shortly after a previously significant pull-back followed by a partial recovery. To make it simpler, picture a “W” in your mind, where the middle of the “W” doesn’t come completely back to the top, and pretend it’s a graph of the economy.

OK, so that’s what it is, and it’s what we hear about almost every day if we tune into any financial broadcasts or news programs. “This group of economists is saying…..”

So could it really happen? Sure it could happen. It did happen in 1981.

A more relevant question, though, would be “Is it very likely to happen?”

To that, the answer is “no”. In fact, since the Great Depression which began in 1929, the United States has had 12 recessions, including the most recent one in 2008 – 2009. In those 12 recession, we have had exactly 1 double-dip – the aforementioned 1981. And anyone who remembers 1981 also remembers runaway inflation exceeding 15%, home mortgage rates and CD yields in that same range.

This was the direct result of the Federal Reserve jacking up interest rates quickly in an effort to curb inflation and it didn’t work – so we can effectively blame that sole double-dip on something the government caused to happen – and that’s not happening now.

Bottom line? You have better things to think about. Go do that.

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