Thursday, May 13, 2010
By at least one metric, a "double dip" recession in the current interest rate environment would be entirely unprecedented. Which is, for those of you keeping track at home, good news.
Of course, there's nothing in there about the chances for a huge surge in wealth-destroying inflation.
Well, how far back does the chart reach? Oh. So, a recession driven by a massive credit collapse may be different than a run-of-the-mill inventory / business cycle recession?
How about this? I give you five times the 0.04 odds and we each put $10K in an escrow account? Takers? I'd do 10x but I can get better returns on my $10K shorting FAZ.
Past isn't prologue when:
1) you're running a deficit > 10% of GDP,
2) unemployment is > 10% and actually higher by more accurate measures,
3) rates have been kept low by Bernanke gymnastics and the dollar looking like a relative safe haven.
I don't know what will happen but I wouldn't expect 1 - 2 - 3 to continue forever. We're in uncharted waters -- the political dimension could be even more relevant.