The Other ‘W’
When it comes to grading the economy, most professors would probably award a C-. But the letters bandied about now when macroeconomists congregate are L, U, V and W. Those letters refer to the shape of the recovery. An L signifies a trough followed by a long period of stagnation, like what Japan experienced during its "lost decade" of the '90s. But since the U.S. government moved with greater speed and force than Japan's economic managers did, many forecasters see economic growth by the end of the year. So, L averted.
Recoveries since the 1940s have typically looked like V's—with the speed and strength of the bounce back mirroring the fall. But with the economy still shrinking—albeit more slowly—we could be in for a U, in which the economy carves a longer arc of bottoming before recovering. Many smart economists, however, are looking farther down the alphabet—to W. Which is to say the economy may go up and down before resuming its course of growth. Why the W? The Fed, along with every other central bank in the world, is printing money faster than ever. As a result, inflation may go back up. When it does, "the Fed is going to have to fight it hard, and that's going to sharply dampen growth," says Johns Hopkins economist Steve Hanke. Add the prospect of further banking losses and rising taxes, and a second dip seems even more likely. The era of W may be over in politics. But in economics, it could just be beginning.
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Rana Foroohar is the deputy editor in charge of international business and economics coverage for Newsweek. She conceives and edits a weekly section of breaking news stories, features and guest articles. She also writes economic cover stories and opinion pieces, and pens a bi-weekly column on the global economy.
Foroohar oversees Newsweek's team of global correspondents and stringers, directing their reporting on the week's business news. She edits regular columnists such as hedge fund manager Barton Biggs, Morgan Stanley emerging markets head Ruchir Sharma, Yale professor Jeffrey Garten and PIMCO CEO Mohamed El-Erian. She is in charge of economic coverage for Newsweek's annual Davos special issue, which features pieces by world leaders and economic thinkers, and also chairs panel discussions while at the World Economic Forum in Davos.
Prior to taking this New York based position in 2007, Foroohar spent six years as Newsweek's European Economic Correspondent based in London, covering Europe and the Middle East. During this time, she was awarded the German Marshall Fund's Peter R. Weitz Prize for transatlantic reporting. She has also worked as a general editor at Newsweek, a reporter for Forbes magazine, and as a writer and editor at various other national and international publications. Foroohar graduated in 1992 from Barnard College, Columbia University, with a B.A. in English literature. She is a life member of the Council on Foreign Relations.
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