An Armenian K:
Commentary by Brendan Moynihan
Sept. 2 (Bloomberg) -- What shape will the U.S. economic recovery take: L, U, V, W, square root or maybe even Riemann’s zeta function?
Many economists and pundits, trying to explain why “it’s different this time,” are groping for new metaphors to explain their forecast for how the U.S. economy will emerge from recession.
Economists long ago gave us descriptions of L-shape recoveries (never happened), U-shape (also never happened) and the W-shape (happened once, for reasons explained below). The triple-U recently made it into the lexicon. And Societe Generale’s Albert Edwards served up the Armenian letter K in a June 4 report.
Commentators unwilling to be constrained by the letters of the Roman alphabet turned to symbols, in May giving us the character for “bank” (it resembles a sickle) used in the Pitman shorthand system for taking dictation. In an interview on Bloomberg Television with Scarlet Fu on July 7, Hans-Guenter Redeker, global head of foreign-exchange strategy at BNP Paribas SA, said the recovery will look like a “square root.” Bank of America Merrill Lynch, in an Aug. 17 report titled “The Shape of Things to Come” also used that symbol.
At the rate they are going, they’ll soon be using Riemann’s zeta function shape (a sort of spiral). Meanwhile, key economic indicators are defying them all with a V-shaped trajectory that typifies economic recoveries in the U.S.
The new metaphors project stagnant growth for the next several years, breaking with all precedent in post-World War II recoveries. Business cycles differ in nuance, but all of them are cycles. And history shows that the deeper the decline, the stronger the V-shaped rebound....MORE