What Could Cause a Double-Dip Recession? By: Gabriel PotterMBA, AIFA® 2020.08.10

For several weeks, we have been warning about the end of the federal unemployment benefits granted as part of the CARES Act.  Already, we are starting to see foundational elements of the economy stutter as these benefits lapse.  For instance, Bloomberg reports that 1/3rd of renters are expected to miss their August rent payment.  These sort of fundamental retraction in basic purchases will ripple through the economy and easily create another pullback – the so-called double-dip recession or a “W-shaped” recovery, as the current economist parlance goes. 

There are clear incentives for Congress to do *something* but there are deep divisions about what should be done.  President Trump has tried to bypass the warring factions (even within his own party) and his administration drafted executive orders which attempt to serve the same purpose as a vetted, negotiated bill through Congress.  There are several problems with this approach.  First, there’s the constitutionality of it (Congress is supposed to manage tax-and-spending) and even if he gets his way, the protracted legal battle will slow down any intended benefit.  Second, the executive orders require compliance from state governments to function, and some of them assuredly won’t comply given the additional burden they’d be asked to endure.  Third, implementing a new system outside of a Congressional mandate to deliver aid takes time and is yet another burden the states would have to make; it might take weeks or months to accomplish, which is onerous given the possibility the executive orders will be declared moot anyway.

In short, however well intentioned the executive order may be, it’s clearly not a slam-dunk in terms of resolving the problem.  Congress has a clearer mandate and ability to solve the issue and potentially avoid a double-dip.

Gabriel Potter

Gabriel is a Senior Investment Research Associate at Westminster Consulting, where he is responsible for designing strategic asset allocations and conducts proprietary market research.

An avid writer, Gabriel manages the firm’s blog and has been published in the Journal of Compensation and Benefits,...

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