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  • srbbs srbbs Aug 29, 2010 3:14 AM Flag

    Economist Shiller Sees Potential for 'Double Dip' Recession

     

    http://online.wsj.com/article/SB10001424052748704147804575455370525902224.html
    With the U.S. economic recovery losing steam, the chances of a second phase of a slowdown are increasing, according to a leading economist.

    Speaking in The Wall Street Journal's The Big Interview show, Robert Shiller, professor of economics at Yale University, said he thought the second dip down of a so-called double-dip recession "may be imminent."

    Earlier this month, he told the Wall Street Journal he thought the chance of a double-dip recession, which he noted is a rare event, was greater than 50%.

    Mr. Shiller now suspects that when the National Bureau of Economic Research eventually looks back at the data, the third quarter of 2010 might mark the beginning of the second dip of the recession.

    In another indication of a faltering economy, the government estimate of second-quarter growth in gross domestic product was revised downward Friday.

    Mr. Shiller also said he thinks the U.S. economy is "teetering on the brink of deflation." Deflation occurs when the general level of consumer prices falls, as was the case in the Great Depression. He said the U.S. is ill-prepared for such an event because of the lack of "indexing" in contracts.

    Deflation is generally considered to be a worse problem for an economy than moderate inflation. The Federal Reserve has been adopting measures to add liquidity into the economy and stave off the danger of deflation.

    In addition, the co-creator of the Case-Shiller Home Price Index said he is worried that housing prices could decline for another five years. He noted that Japan saw land prices decline for 15 consecutive years up to 2006. Data released earlier this week show the housing sector is performing at the worst level in decades.

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