AM 1150 Kelowna - Radio Rallies & Reversals

Continuing my discussion from this morning, there is a real risk the US and global economy slides back into recession. That seems to be the fear of both bond and stocks investors of late. The front page headline in the Financial Post reads: "G20 to half deficits by 2013, stabilize debt levels." I'll admit, it's the right decision in the long-run, but doesn't bode well for the short-term, at a time when leading economic indicators are heading south once again.

Double-dip recessions are rare in history and the current shape of the yield curve would support that, but short-term rates are artificially low. Obama's head of the Council of Economic Advisors, Christina Romer, conducted research that shows tax increase or decreases have a three-times multiplier effect on GDP. If the Bush tax cuts are allowed to run out next year, at a time when unemployment is still high and housing prices are falling again, a double-dip is a real possibility.

GB