A double dip recession is possible

Black hole

Some predict the real estate market will enter a double dip black hole for home values. Image from Wikimedia Commons.

Some economists look for the most positive signs, and others look for the most negative signs. Recent economic data has given some experts reason to think that a double dip recession, where economic activity plunges, ticks up slightly, then plunges again before stabilizing, is beginning to look more likely. The forecast for doom and gloom is not native to only Wall Street as economists in Europe are starting to think it will happen there as well, and the second tumble will also be global.

Moody’s warns second slide possible

Recently, credit rating agency Moody’s released a report, through its research wing Moody’s Analytics, that puts the likelihood of a double dip recession at one in four, up from the previous estimate of one in five. According to the Wall Street Journal, Moody’s has predicted that if a double dip recession does occur, real estate prices could fall a further 20 percent. The company believes that the real estate market will stabilize sometime in 2012. Moody’s also contends that the economy will shrink by a further 5 percent in the second dip.

Federal Reserve doesn’t smell roses either

The Federal Reserve doesn’t exactly think wine and roses are in the near future either. After a meeting Tuesday, the Federal Reserve stated that the economy overall had not grown as fast as hoped, and that recovery would take longer than anticipated, according to CNN Money. The Fed did not address the possibility of a double dip recession, but did announce it would keep the federal funds rate at or near 0 percent and purchase further Treasury securities.

Ripples across the pond

The United States is not the only location where a double dip recession is possible. A European double dip recession is possible as well. Given that the trade deficit is wider than ever, there is an indication that America, as a whole, is producing fewer goods for export. Having nothing to sell means no money coming in. Coupled with a troubled housing market, these indicate a very slow recovery at best.

Further Reading

Wall Street Journal

CNN Money

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