Nouriel Roubini's dour piece (is there another kind?) in Forbes today reminded me of a question that's bouncing around the blogosphere: How many letters can we use to describe this recession and which one will we finally end up with?
As you've probably seen, writers and economists use the shape of the letters to describe the direction of the economy. The most common are V, representing a brisk fall and rebound, and U, representing a slower rebound with some lingering around the bottom. There's also the dreaded L, for the way Roubini looks at me in this Forbes photo, and also for the way he's worried that our economy could look like Japan from the 1990s, stuck in the economic basement for years.
But now that the economy seems to be showing signs of spring life with fortuitous "green shoots," some economists are wondering whether we're going to see something more like a W, where the economy crashes, bounces back and crashes again. As if the country hadn't had enough of that letter already, here's the case for W:
First, even after the fiscal stimulus and the home refinancing frenzy work their way through the economy, the nation's banks will still be in a bad way. Despite the administration's efforts, banks won't lend as much as they should and will postpone their day of reckoning by simply rolling over bad loans. That portends another banking crisis...
Given the magnitude of the crisis and also the federal governments' historic and swift activity, injecting more than $8 trillion into the economy with stimuli, bailouts and asset purchases (see this graph for an instructive breakdown of the federal rescue) I'm inclined to think the recovery will look less like a letter and more like the Nike symbol. But maybe that's just a cop-out of cautious optimism. Let's just all gives thanks that, besides Glenn Beck, nobody seems to be suggesting we go with "I."