We're doomed. According to Paul Krugman, we are heading headlong into the Third Depression, which will be deep and last for years, because world leaders and domestic ones have responded with austerity measures, instead of stimulus.
I hope that he's wrong and I'm sure that he does too. There are certainly plenty of economic indicators that seem to show that we have begun a slow rebound from a deep and long recession already. The recovery may be fragile, certainly it is not irreversible. But, apart from the little tweaks that have come from the end of temporary Census jobs and the housing market rush that came with its demise followed by an inevitable slump, there are few signs that we are headed for a double dip recession.
Stimulus may make a recession less painful, but ultimately what matters is that the structural problems that existed before a recession have been addressed so that they will not recur. The consensus reached on financial reform that is likely to become law this week will be one major step towards resolving that problem. A bigger worry is that there may still be shoes left to drop in the housing crisis as shadow inventories return to the market, real estate investors give up trying to avoid taking losses, and delayed foreclosures start to run their course.
Weakened stimulus spending is still a concern, one that is driving a billion dollar plus hole in the Colorado general fund budget that Governor Ritter and Joint Budget Committee Chairman Mark Ferrandino have the unenviable job of trying to fix. But, if the economy catches its stride again, some of the cuts that they will be forced to propose can be withdrawn as revenue estimates return to normal levels.