Understanding the Effects of a Double Dip Recession

A recession is rarely a positive economic situation, but the effects of a double dip recession can be particularly damaging to both morale and the economy. A double dip occurs when a recession is followed by a period of slight growth and then another recession. The second recession is called a “double dip.”

The effects of a double dip are often far more serious than the effects of the original recession. With a double dip, you face a nation full of people who are no longer confident that the country is going to recover. The short period of recovery followed by yet another period of economic difficulty.

If the nation affected by the double dip is influential enough, it can lead to a worldwide recovery. Investors around the globe are going to be hesitant to invest with a nation that is struggling for a second time.

One sometimes positive result of a double dip is the fact that interest rates are going to go down, unless they are already at all time lows. This can be beneficial for those who have managed to keep their jobs and are looking to buy property or otherwise borrow money. However, banks tend to be quite stingy about who they will lend to in these situations, which can make it challenging for those who are trying to borrow money, unless they have perfect credit scores.

This type of recession is more difficult to come out of because of the lack of consumer confidence. Many consumers begin to fear a full economic depression and start to hoard their money and assets. This, in turn, makes it more difficult for the economy to rebound. It is a catch 22 for all involved.

As the country plods along in the second recession, businesses begin to suffer as consumers have less and less money to spend. This turns into a time frame in which businesses are closing their doors left and right. The closed businesses lead to fewer and fewer jobs, and the economy continues to spiral out of control and into a possible depression. It is possible to avoid a depression, but it becomes increasingly difficult.

Causes of a Double Dip

There are many factors that contribute to a double dip. The causes of a double dip are sometimes hard to pinpoint. Often, government intervention during the first recession ends up causing the second. In the 1980s, for instance, the government raised the interest rate in order to try to stabilize the economy. This worked for a little while, but then people stopped borrowing as much as they tried to afford these new, higher rates. The result was a second recession.

Sometimes a recession occurs when the country faces a jobless recovery. A jobless recovery is a period of economic growth when the gross domestic product increases, yet unemployment rates remain unchanged and quite high. Job growth is absolutely essential to recovery from a recession, and without it, any recovery is simply a temporary event.

While the causes of a double dip are hard to pinpoint, the effects are easy to see. That is why government leaders work so hard to avoid this possibility.