The risk of a double-dip recession hasn\u2019t abated, even after news of the huge European bailout in response to the Greek debt crisis.<\/p>\n
World markets soared initially on the announcement of the nearly $1 trillion rescue plan, and then declined. But as the economist John Maynard Keynes cautioned long ago, such market reactions are basically a \u201cbeauty contest\u201d\u009d \u201d\u201d with investors trying to predict the short-term reaction that other investors think still other investors will have.<\/p>\n
In other words, don\u2019t view these beauty contests as a heartfelt response to a fundamental change in the economy.<\/p>\n
In fact, there is still a real risk of a double-dip recession, though it can\u2019t be quantified by the statistical models that economists use for forecasts. Instead, the danger stems from the weakness and vulnerability of confidence \u201d\u201d whose decline could bring markets down, further stress balance sheets and cause cuts in consumption, investment and local government expenditures.<\/p>\n