Why we will double dip in 2010

Andrew Pegler – 22 January 2010

Please excuse me while I put on my horns, crank up the fires of Hades and assume the role of devil’s advocate for a double dip in 2010 – folks, the recovery is an illusion David Copperfield would be proud of and 2010 will be a shocker.

Right now things are going along well. Stats are looking up, the jobs market is turning, banks are starting to lend. But a closer look reveals what I call the Great Impression. All is not well and it’s hard to know where to start.

This year will be a very tough one for Australia and things that will be keeping Kev and Wayne awake include how to exit the fiscal stimulus, the creeping shadow of inflation, the bursting of the housing bubble, infrastructure bottlenecks and the small matter of moving to a low-carbon economy. Oh yeah, and this is all in an election year.

Then there’s history – you know that thing you are doomed to repeat if you don’t pay attention to it. After the Great Depression the economy was OK for the first two years then things got worse, a lot worse. And many see parallels between then and now. For starters this growth is illusionary – it’s stimulus driven but we’ve mistaken it for genuine economic activity. Yes folks, we’re about to learn that a bunch temporary shovel-ready Keynesian band-aids didn’t give us the fairytale ending we wanted. I would like to suggest we go back to the drawing board but unfortunately we sold it to the Chinese to pay for a Memorial Hall at Nowhere Primary!

Then there’s the recent spike in production and sales which is less about green shoots and more about the yellow weeds that have sprouted thanks to tax breaks and businesses tentatively stocking up after not doing anything for most of the year. The reality is that the demand needed to kickstart things just isn’t there and by year’s end we will have acres of warehouses full of dead stock.

Then there’s the international economy which is looking shakier than the trembling heart of a captured bird. (Thank you Roberta Flack circa 1971.) Everywhere you look there’s another country having trouble paying its debts – a phenomenon called a sovereign debt crisis. The massive debts taken on by countries to blow on stimulus packages will unravel this year turning the global financial crisis into the mother of all sovereign debt crises. Dubai nearly went under at the end of last year, Greece is teetering on the edge of oblivion and the UK is facing a possible credit-rating downgrade. And don’t ask Barnaby Joyce about the possibility of a US default – you’ll be there all day.

And finally, on a negative note, let me leave you with something out of The Economist this week: “This year the world may have to choose how to answer the question laid out in 2007 by the French president, Nicolas Sarkozy: an Iranian nuclear bomb, or the bombing of Iran?”

Until next week, keep fearing, stay anxious and be sure in the knowledge that the sky will fall in in 2010.