Double Dip Recession

The crisis unfolds in four quick steps:

FIRST, since a sovereign debt default would inevitably cause ALL bonds to crash, investors stampede for the bond market exits, dumping as much as they can as fast as they can.

SECOND, as the bond market reels, interest rates skyrocket and credit tightens. The rates on 30-year fixed-rate mortgages, auto loans and other long-term debts soar. Rates tied to short-term money markets -- on credit cards and variable mortgages -- follow.

THIRD, consumers -- whose spending represents fully 70% of the economy -- snap their pocketbooks shut.

FOURTH, corporate earnings and stock prices crater. As the economy hits the skids, unemployment soars.

Clearly, these events would be the coup de grâce to an economic recovery as fragile as this one is. And they would almost surely transform a Great Recession into a Great DOUBLE-DIP Recession, if not worse, plunging us into the second bear market in three years, lighting the fuse on a second explosion in unemployment, and triggering a second surge in personal and corporate bankruptcies.

The current cyclical analysis is confirming that a major new decline in the economy is coming later this year.

* U.S. stocks will decline starting this year and continue falling in a zigzag pattern through 2012.

* The U.S. dollar index may continue to firm somewhat as the European debt crisis drives investors into dollar-denominated investments. But then the greenback will collapse until late 2011 as the U.S. sovereign debt crisis runs its course.

* Serving in its capacity as a global crisis hedge, gold will skyrocket FAR higher than $2,000 per ounce by the end of 2011.

* Crippled by soaring interest rates due to the U.S. debt crisis, our economy will suffer a devastating double-dip recession in 2011.

(Full article by Richard Clark)