Double dip gamble‏

There has been all kinds attacks on the coalition cuts all over the web and warnings of a double dip recession after yesterdays Bank of England forecast of a 'choppy economic recovery'. While less than 3% growth is not great its still not a double dip recession so lets not panic just yet. The way some have reacted you would think that we are back in a recession.

If we keep on talking about a double dip recession it will happen because even those that can spend or even need to spend well hold of on those planned purchases and ties goes for business too.

For what it's worth I think government spending should be cut as it cannot be sustained and I would like to see admin inefficiencies removed. By the same token I would like to see more capital projects like in the states for example the High-speed rail plans is a great example. The good thing about capital spending is that we all get a permanent asset which the country can use.

One of the real keys as Mervyn King said is small business bank lending. I believe the sooner we split up the banks the better so they can get on with lending funds to business.

I'm willing to admit as a Lib Dem that I don't fully agree myself with having cuts too quickly but I do agree that we must have the cuts. I'm somewhere between the coalition and the Labour party on this (I guess that's what makes me a Lib Dem right).

I do think however that this is a gamble and a fine line between pleasing the markets (the reason why we are cutting to keep the interest payments down and rate) and not going into a double dip recession. If the banks can get the money flowing then there won't be a recession but personally I'm not enjoying the ride.

Hold on tight people it's going to get bumpy but try not to panic.

Todays Links related to this Norfolk Blogger postDouble Dip Recession ? We were warned !

Is the Definition of a Recovery a False Economy‏?

Recently a number of major economies have come out of recession (France, Germany and Japan). This lend me to think about the definition of coming out of a recession.

It seemed odd that 2 quarters of economic decline is required for a recession and only one month’s economic increase required to pullout of a recession. To me this seems wrong; surely you would need to have 3 months of GDP expanding to actually pull out of recession.

I agree that technically the recession is over if for one month a country pulled out of one, however if the economy took a downturn again say in the next month does this mean we have to wait 3 months to declare a recession again?

Imagine the scenario of an economy which is in recession with these movements in the GDP per month using the same unit of measurement (see graph) expanding the odd month but also with more periods of contraction. We all know that this is an economic decline as that's the trend but this scenario would not be called a recession at the time just stagnation perhaps. In hindsight people may look back and call this period a recession but not when they are in the moment, the government would say look we are out of recession when really it’s not the case.

Naturally in real life we tend to go through an economic cycle of growth and decline etc so I admit that the above scenario is unlikely, but it is possible a close example of this is Japans lost decade. Perhaps we should really have economic recovery redefined as 2 quarters of economic growth?

An economist looking at the situation would say that 'we are coming out of recession' but a politician who is in power would say 'We are out of recession'. I think economists should point out to politicians that just because an economy does not shrink it dose not mean that the economy is now out of a recession. Watch and see over the next few months when these claims are made.

I would like to note that I have a diploma in economics.