Goldman's Jan Hatzius: The Recovery Was Artificial, And There's A "Sizable Risk" Of A Double Dip

Jan Hatzius

Goldman’s top economist is on CNBC this afternoon.

He says there’s a 25-30% chance of a double dip, though the most likely outcome is a sluggish, gradual recovery.

The recovery has been artificial — stimulus spending and inventory restocking — and thus there’s no reason to see a return to robust growth.

He’s particularly concerned about the expiry of the Bush tax cuts, he sees the unemployment rate going back to 10%, and he sees QEII beginning sometime in the next few months.

The biggest risk: There hasn’t been enough healing to create end final demand.

Another big risk: Policy mistakes (e.g. the full expiration of the tax cuts).

As for Japan parallels, he notes that the US financial system is significantly better than Japan’s was at the beginning of its lost period, however the US is already at the zero-bound of nominal interest rates (like Japan), and there’s a large output gap.

Here’s the video, from CNBC:

 

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