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Double Dip-Recession, looks like it.

The Economy Has Hit “Stall Speed,” Says Mauldin–Look Out Below

By James B. Driscoll– Wed, Aug 3, 2011 10:43 AM EDT

In his latest weekly note, John Mauldin argues that the U.S. economy has hit “stall speed” and that we may well be headed for a double-dip recession.

Worse, says Mauldin, the president of Millennium Wave Advisors and the author of “END GAME: The End of the Debt Supercycle,” believes that the best-case scenario for the next decade is likely a “muddle-through” economy in which growth averages only 2%.

Whenever year-over-year growth in GDP drops below 2%, Mauldin says, a recession generally follows. With the recent downward revisions to GDP in the past few quarters, we’re now approaching the 2% level. Although the economy could stabilize at this anemic rate of growth, the implosion of Europe would tip us into another recession.

And why the lousy outlook beyond that?

Because the country has only just begun to tackle the massive debt and deficit problem that nearly paralyzed the government last week.

The US needs to shrink government spending relative to GDP every year for the next 5-10 years, Mauldin says. And these cuts in spending will drag down the growth of GDP. America’s consumers, meanwhile, still have debt coming out of their ears, so they won’t be able to pick up the slack. Put these two factors together, Mauldin argues, and we’re headed for a “muddle-through decade.”

And that’s the best-case scenario. Another scenario, Mauldin says, is a full-blown debt crisis triggered by what’s happening in Europe right now. Such a crisis would lead to drastic slashing of government spending on both sides of the Atlantic, and this would clobber the economy. In this scenario, Mauldin says, we won’t be looking at “muddle-through,” but a recession.

I believe were in for a tough ride the next 5-10 years, before the Biggest Bull Market in the world will come around 2021.

James B. Driscoll, President

Categories: Economic Update
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