Double Dip Recession

Double Dip Recession Definition

An economic recession is a period of time during a country’s economy when economic indicators, including GDP, are declining for two quarters or more. A double dip recession is defined as a point in the economy when a recovery from a recession has started to occur but then the economy slides backward into a second recession. The trend is measured both by negative growth as well as by the GDP losing ground after making initial gains to come out of a recession. It is often caused by increases in unemployment that cause demand to decrease significantly. This type of recession does not occur very often, and the last one to occur in this country was 30 years ago.

A double dip recession graph line, rather than looking like the “V” of a typical recession, looks more like a “W”; with a decline, a partial rebound, and then further decline before a final rebound. These types of recessions are much more infrequent but also much more difficult to recover from. The double dip recession of 1980 forced the American economy to endure a much more difficult recovery process that had a lasting impact on the country’s economic health.

Understanding the Double Dip Recession of 1980

In 1980, instead of the economy going into a steep decline and then rebounding, the country began to rebound and then floundered and fell into a secondary recession. The double dip recession of 1980 actually lasted from 1980 – 1982. During that period, there were significant reductions in available investment capital, a dramatic increase in unemployment, and a drop in GDP. The combination of economic factors collided with the Fed chair Paul Volcker philosophy that keeping interest rates artificially high would stimulate the economy. The forced double-digit interest rates have been attributed to causing the double dip recession of 1980.

Is Another Double Dip Recession Coming?

A look at double dip recession history reveals that it is extremely uncommon. In the last century, only one recession of this type has occurred. A very specific set of economic circumstances must present itself in order for the conditions to be such that they would induce this kind of recession. Many people feel that another double dip recession is going to happen or currently underway. Not only are there the same economic factors; such as, a lack of available investment capital (thanks to the credit crisis), a dramatic increase in unemployment, and a drop in GDP, but the economic crisis in Europe and Asia may also contribute to increasing the risk for another double dip recession in the U.S.

The coming months will be critical in determining whether or not a double dip recession is on the horizon. If the European economy can stabilize and the Chinese will loosen up the value of the yuan, the economic relief may be enough to stave off another decline in the United States. However many financial experts believe the country has already stepped off the precipice and that once the data is analyzed we will find that we’ve already started the decline into a double dip.
Tim Ord
Ord Oracle

Tim Ord is a technical analyst and expert in the theories of chart analysis using price, volume, and a host of proprietary indicators as a guide...
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