Most economists had hoped for a V-shaped recession, similar to the ones in 1990 and 2001. This is one that is very deep, but short-lived (less than 8 months) and bounces back strongly. It is too late for the current recession to be a V-shaped, since it has already lasted 18 months.
Instead, Roubini is forecasting a U-shaped recession, which has a longer decline before it bounces back. Roubini is forecasting that the recovery will be shallow. The economy will not grow more than 1% for the next several years..
There is also a risk of a W-shaped recovery. If the Fed raises interest rates, or the government raises taxes after a recovery starts in 2010, the economy could be pushed back into recession.
What It Means to You
Whether the economy is a U or a W, life will not be returning to "normal" for quite a while. A healthy economy requires 2-3% GDP growth and 150,000 new jobs per month. This probably won't happen until banks return to normal lending activity, no matter how much the government spends.Related Articles
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Comments
Thanks for the simple explanations Kim. I’m hopeful that it will be a U and not a Big W! I guess we’ll just have to wait and see…
Hi Paula,
If the government had done nothing during the money market run last September, we would be in an L-shaped recession.
The banks would have continued to panic. Without overnight lending, businesses would have shut down. Quick response by Paulson and Bernanke restored enough confidence to prevent a collapse.
See Money Market Run.
Kimberly