10 Jun 2010

Reynolds Doesn’t Think A Double Dip Is Coming

Economics, Financial Economics 10 Comments

All Reynolds does in this piece is pick apart people who claim that unemployment figures are indicative that we are about to double dip. (HT2 DRH) OK, that’s fine as far as it goes.

Anyway I think we are definitely in store for a “double dip.” I think this is the second Great Depression.

I really don’t know what more the government and Fed would have to do, to set the economy up for a massive crash. 0% interest rates for a long time, trillion-dollar plus deficits, taking over banks, car companies, health care, energy sector… I really don’t understand why so many free market economists are still bullish about the economy. If all of the above really don’t make a big difference, why are we spending so much time “getting the message out”? If the most interventionist administration in 75 years is only going to give us a sluggish recovery, on the margin shouldn’t we be teaching kids to read or something?

The one indicator Reynolds gives of how he actually forecasts double dips, is that it seems to be due to Fed interest rate hikes. So I think Reynolds is saying as long as the Fed keeps interest rates down, we won’t have another recession.

I suppose that might be true in the sense that massive price inflation could kick in (because of Bernanke’s insane policies) and then the Fed would jack up interest rates, at which point the economy would collapse. But that’s not jumping out of Reynolds’ article. He seems to be saying, “As long as Bernanke doesn’t do something dumb like jack up interest rates, there’s nothing to worry about.”

10 Responses to “Reynolds Doesn’t Think A Double Dip Is Coming”

  1. Contemplationist says:

    Bob you really gotta be more thoughtful or introspective before making predictions on the fly.
    I’m still waiting for that massive inflation that was supposed to be already taking place by now.
    Put a range, if you can’t help it. Say massive inflation starting between 2010 and 2014 or something like that.
    If you keep shooting from the hip, all your further predictions of course lose further and further credibility.
    So yeah, I don’t believe a double dip is coming. But thats fine, no one knows. I wouldn’t be surprised if it does happen.

    • Jonathan Finegold Catalán says:

      I think the comment that nobody really knows what is to come is on target, but I think that economists can still make predictions based on current trends and future expectations. Obviously, Prof. Murphy’s predictions will depend on the caveats he provides (i.e. long-run monetary inflation will depend in large part on Bernanke’s monetary pumping).

      I provide some of my own amateur analysis here: http://www.economicthought.net/2010/06/robert-murphy-on-the-double-dip/

      I think that stagflation is much more likely in the short-run, and if we see an increase in consumer loans then we will see a greater rise in the rate of inflation (or an increase in government spending). I don’t think we’ll see substantial deflation, because Bernanke is currently targeting the inflation rate.

  2. Jon O says:

    Ya, because the last 20 years in Japan was certainly a period of monetary tightening and rising rates!

    When balance sheets are encumbered, collateral prices are depressed, deflation expectations become ingrained etc. it doesn’t matter what you do with interest rates as people don’t want to borrow. (Look at the recent Z.1 release; non-financial credit growth was only positive because of gov. borrowing) The only way to avoid a double-dip is for fiscal policy to blow up another credit/asset price bubble. With whats going on in Europe the less-insane Keynesians are starting to worry while the electorate is looking for austerity.

  3. Bob Roddis says:

    Haven’t we really had the Murphy-esque small inflation in the short run?



    When the states and local governments run out of cash, what is Bernanke going to do?

    • Daniel Hewitt says:

      When the states and local governments run out of cash, what is Bernanke going to do?

      He will blame the free market. It seems to have worked well so far, much to my chagrin.

  4. fundamentalist says:

    I have to disagree about the double dip. I think the US economy is still more dynamic and flexible than Japan’s. And in spite of the massive state intervention in the economy, it’s still less than what takes place in China and China is growing. Sometimes I think capitalists underestimate the awsome power of even limited free markets. As for the Great D, state intervention did destroy a great deal, but we haven’t see intervention by the state on that scale. And I think a forgotten component of the Great D was that people then still viewed gold as money and distrusted paper money. That caused a lot of hoarding which we don’t have today. Plus you had massive retail bank failures. All we have suffered recently is the failure of a few large investment banks.

  5. redbud says:

    Contemplationist … you really gotta be more thoughtful or introspective before making comments on the fly.


    Best wishes from Kansas!

    • sandre says:

      1000s of banks failed during the S&L crisis. That didn’t cause a depression.

  6. redbud says:

    Oops. That was meant for Fundamentalist. Sorry.

  7. sandre says:

    I think the problem with Austrians is that, in their view, everything has to end in the worst possible disaster. Yes, state interventions are bad, and economy will be better off without them, but they all don’t have to end up in the worst possible scenario. I don’t know if there will be a double dip or not, but I know that there will be more booms and busts in the future.