Thursday, July 01, 2010

 

“Double Dip” — A Profound Misunderstanding

At first the world economy was going to bottom, after which the recovery would set in, and the good times would roll again. But now there is increasing sentiment that we’ll have a “double dip,” meaning that the current green shoots will wither, the economy will bottom a second time, and then at last we’ll see a lasting recovery — with the good times rolling again.

This shows a profound misunderstanding of what’s happening. There will be no “recovery” or good times rolling, or even crawling. At this point in time, the world is starting energy decline, and making the transition from the era of economic growth to the era of economic contraction. Until now we’ve been on the up slope, or the pump phase. During those years of heady economic growth there were occasional recessions, so that while there were ups and downs, the general trend was up. Under economic contraction we’ll see the opposite: there will be occasional upswings that governments and media will celebrate with proclamations of “green shoots” and “nascent recovery,” but they’ll burn out because from now on the overall trend will be down, in other words, the dump phase.

So the lesson is that we should not get our hopes up over occasional or localized “improvements” in the economy because they’re just bumps on the downward slope. Look at the long-term trend and prepare for that instead of counting on the return of industrial prosperity.



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