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Odds Favor a Continued Economic Slowdown

(10/05/10)

History reveals that recessions which are caused by credit crises are long and severe and such recoveries are typically accompanied by sub-par growth over a prolonged period of time while households go through the painful deleveraging process. During the first four quarters of the current economic recovery, real GDP growth of just 3% has been generated compared with an average of almost 6% during most post-war recessions. Early momentum in an economic recovery is fueled by inventory, employment expansion, consumer spending, housing and greased by the free flow of available credit. Of these five typical engines of post-recession growth, only inventory seems to be at play, the remaining four engines are stalled. Gross domestic product (GDP) grew at an annual rate of 5% in the 4th quarter of last year, 3.7% in the 1st quarter, followed by an anemic 1.7% in the 2nd quarter. It appears that the resumption of an economic slowdown is in progress and could very well lead us into another recession. In the past six months the Fed has shifted the focus of their conversation from the withdrawal of stimulus to yet another round of quantitative easing (QE2) otherwise known as printing dollars and currency debasing. This discussion would not be on the table if it were not for the fact that it appears the economy is unable to recover on its own.

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