Bernanke Confident That USA Will Avoid A Double-dip Recession

By: Dr. Mike Campbell

One of the perks of being Chairman of the Federal Reserve must be access to the world’s greatest crystal ball. No doubt this was the means whereby Ben Bernanke was able to declare that the US economy would avoid a double-dip recession – hopefully. The chairman’s comments were enough to breathe a touch of optimism into Asian markets which allowed them to close slightly higher.

The idea behind a double-dip recession is that the “recovery” – and I accept that I am using the term loosely here – was not driven by the return of consumer confidence and demand which stimulates real economic growth, but rather it was brought about by the financial stimulus packages that many leading industrial nations put in place. These measures were needed, or so it was believed, to prevent meltdown in the financial sector; restore liquidity to the markets and stave off a worse recession than seen during The Great Depression. However, if the economic fundamentals are not yet in place for genuine growth, there is a chance that economies may fall into another cycle of recession (since they never really exited the last one). Certainly, with the “recovery” under way in many major economies for almost a full year, there has been no sign of growth in jobs which would be characteristic of genuine renewed economic growth.

Confidence is probably the greatest fundamental which powers the markets and economies. At the moment, it is in short supply. Fears over the sovereign debt crisis have forced the Euro to lows against the Dollar and Yen not seen for 4 and 8 years, respectively. Perhaps Mr Bernanke and his crystal ball are just seeking to pump a little much needed confidence, and a dose of common sense, into the markets.