back to recession?

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Zanny Minton Beddoes, economics editor for The Economist, was on the radio this morning, talking about the risk of a double-dip recession. After the deal to raise the debt ceiling, she puts the odds at fifty-fifty.

"To fall into recession, the economy probably has to be hit by yet another shock. The worrying thing for me is, there is another shock coming, and that is in the form of tighter fiscal policy. Over the coming year the U.S. is going to see quite a sharp fiscal tightening. Not as a result of the debt deal, per se ... but as a result of the stimulus measures ending and, particularly if temporary tax cuts such as the payroll tax cuts, which are due to expire this year, do in fact expire, then the U.S. gets hit by a pretty hefty fiscal shock. That, combined with an economy that's already at stall speed, is what really worries me. And so, yeah, I think the odds are perhaps as much as one in two over the next year that the economy could go back into recession."

"That's where I find the contours of this debt deal so discouraging. The U.S., unlike many other countries, actually, has the room to deal with its medium-term fiscal problem--which, we all know, is really a problem of entitlements and the need for more tax revenue--in the medium term, while at the same time cushioning the economy now, when it's weak. And that could have been enshrined in the debt deal, and it wasn't. In fact, if anything, the opposite was enshrined."





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