Triple-U or Square-Root Sign? The Recovery's Taking Shape
By: There's no doubt the recession is winding down. The hot question now is, what shape will the recovery be?
It all depends on how optimistic you are about the recovery—and the economy's prospects for growth.
A recent survey found the debate centers on three components: The speed, strength and durability of the recovery.
"Some of these shapes are dizzying!" said Alyx Kaczuwka, author of the blog LOLFed.com, about all the alphabet theories of recovery.
The three main shapes being tossed around are the "U," the "V" and the "W."
U, the most popular shape, is for those who think we're going to wallow at the bottom a bit before growth begins. The Vs think once it takes off, it'll be a steady climb. And the Ws say — prepare for another dip on this rollercoaster.
The "L," of course, is the doomsday scenario: We hit bottom, and there's no end in sight.
This recession being as extraordinary as it is, there have also been some, well, extraordinary shapes being tossed around in recovery-theory circles. The latest one is the "triple-U" — basically the W's who've grown more pessimistic and think the lows will be low and we'll be on this wild ride for a while.
There are also a few "N" theorists — they're even more optimistic than the V's on the recovery, suggesting once the recovery starts, it will be like a rocket.
A group of "O's" has emerged — mostly critics of the current administration, who think Obama's going to have us going in circles for a while.
And, a couple of wild cards: The "square-root"-shaped recovery, where you take your basic "V" and slap some stagnant growth on the end, and the "Mickey Mouse" recovery when means — well, let's just say there may be a few loop-de-loops.
Fasten your seatbelts and get ready for some of the more bizarre theories of economic recovery!
A 'TRIPLE-U' SHAPED RECOVERY
The "U" theory of economic recovery is quaint and all, but most economists say it's not going to be that simple.
Slap three of them together, and now things are getting interesting.
A "Triple-U" is is the boom-and-bust theory of recovery, where there are a bunch of fits and starts before the economy gets back on its feet.
In a research note titled "The World Is in Trouble," Deutsche Bank Chief Economist Norbert Walter, proposed the triple-U-theory.
“I believe that the rescue packages brought on have been so costly for so many governments that the exit from this fiscal policy will be very painful, very painful indeed,” he wrote.
“Some of us are already talking about a W-shaped recovery," he said. "I’d probably talk about a triple-U-shaped recovery because there are so many stumbling blocks here to get out of this,” including the job market, housing market, consumer spending and all the unwinding the government's going to have to do of assets it bought up to stem the bleeding.
Nouriel Roubini, a professor of economics also known as "Dr. Doom," agrees there is a risk — albeit a slight one — of a double-dip recession.
"I can still see downside risks for financial institutions," Roubini said, citing the growing deficit, which could cause panic among those buying government debt, and the possibility of oil surging back up to $100 a barrel.
"It could lead to a double dip. I'm not saying it's going to happen but it's a risk," Roubini said.
But some market pros said the problem with the Triple-U theory, like the W, is that it presumes all the dips will be equal. If we are going to double — or triple — dip, most say they won't be as severe as the first.
AN 'L'-SHAPED RECOVERY
The L, of course, is the doomsday scenario: We hit bottom, and there's no end in sight.