Double Dip?

The Double Dip?

Some Thoughts:

Timmy: What are you doing?

George Costanza: What?

Timmy: Did, did you just double dip?

George: Excuse me?

Timmy: You double dipped!

George: Double dipped? What, what, what are you talking about?

Timmy: You dipped. You took a bite. And you dipped again.

George: So?

Timmy: That’s like putting your whole mouth right in the dip. From now on, when you take a chip, just take one dip and end it.

George: Well, I’m sorry, Timmy, but I don’t dip that way.

Timmy: Oh, you don’t, huh?

George: You dip the way you want to dip. I’ll dip the way I want to dip.

[An all-out brawl breaks out between George and Timmy.]

Just like the Timmy in the Seinfeld Episode, who will do whatever it takes to stop the Double – Dipping, our Timmy (Geithner) is similarly adamant this year.

On February 7th of this year he had this to say: “The risk of a “double-dip” recession is “much lower” now; we are determined to help guide this economy back to the point where we’re not just growing again, but we’ve seen growth translate into jobs. And that we’re reaching the lives of all Americans.”

In April he had this to say when asked if he was worried about a double dip recession when federal aid starts tapering out 
“I’m not worried about that – and the reason I’m not worried is because I think that we’re going to be careful not to put on the brakes before we’re confident,” he said.

In late June at a G20 meeting, Tim Geithner said, “instead of reducing spending, countries including Japan and those in Europe should increase domestic demand, and the focus there should be on increasing domestic growth if they wish to prevent a double dip recession.”

And now July, “the risk the U.S. economy will slip back into recession is lower now than at any time in the past year.”

But can talking it down alone make it so? There are many signs that we are double dipping. The treasury spread / yield-curve, housing, and even unemployment.

The massive government stimulus has begun to wind down. The census is in the past. Home-buyer tax credits have ended. The ending of stimulus has scared Paul Krugman into sounding the alarm this past week, and he is calling for $1 trillion in new stimulus to keep us from crashing.

The problem is that more stimulus makes the red line below shoot up even more parabolically. And we know what is happening to tax receipts on the federal and state levels (blue line). And as long as the red line is above the blue line, we will continue to see our staggering debt shoot to the moon (the second chart below showing credit as a %GDP). There was a great blog post by Henry Blodget earlier this year that asked how this movie will end. I’ll just quote that post (http://www.businessinsider.com/henry-blodget-so-how-do-you-think-this-movie-will-end-2010-1) here:

“If we’re lucky, it will end gradually, in a long, boring couple of decades in which we gradually get our discipline and competitiveness back and bring our finances under control.

And if we’re not lucky?

Well, then, the movie will have a more exciting ending.”

Oh, regarding yesterday’s action in the markets… it coincided with the Pamplona Running Of The Bulls. True! Pretty amazing. 6-1 advancers over decliners. The big difference though, was that in Pamplona the bulls only gored 2 short people, while in New Jersey the server rooms gored 816,000 short people.