08/27/2009 05:12 am ET Updated May 25, 2011

Ouch! Recession, Part 11

Okay, we've borne the brunt of an economic Katrina, but we're all being assured and reassured from Washington, the media and Wall Street that the current recession is on its last leg and we're on the verge of a lively and protracted rebound.

Says who? Such notable figures as Federal Reserve chief Ben Bernanke, Treasury boss Timothy Geithner and General Electric skipper Jeffrey Immelt, as well as most Wall Street economists and some talking heads at the business networks.

Obviously, many investors are swallowing this line of sunshine. Indicative, hordes have gone on a buying binge, in the process bidding up the Dow Industrials more than 2,500 points from their March lows.

Whoa there! Before falling hook, line and sinker for this economic guarantee from the happy-days-are-here-again crowd, you may want to weigh what seems to be some legitimate skepticism from a number of doubting Thomases. They're suggesting that after a brief reprieve, we're in for more hurricane weather, or specifically, Recession, Part 11.

Reflecting this thinking, several prominent economic voices are now calling for a double-dip recession--an end to the current one, a recovery of sorts and then a slide back into another recession. The latest big name to endorse this scenario is Harvard University's economic professor Martin Feldstein, who thinks a new downturn could kick off as early as this year's fourth quarter after the effects of the stimulus package wear thin.

A similar roller-coaster ride is also suggested by George Soros's former sidekick, global money manager Jim Rogers of Singapore-based Rogers Holdings. Rogers often predicts the economy and the stock market will go to hell in a handbasket. For now, though, he sees a temporary reprieve for the battered U.S, economy, but then a possible resumption of even stormier economic weather in 2010 and 2011.

Huge amounts of money have been poured into the system, so the people getting all that money will feel good for a while, Rogers observes. But in the end, he says, someone has to come up with all the money which people are now receiving. It must come from taxes, borrowing or printing, none of which will be good down the road. We will feel the effects and things are likely to get worse, he says, spurred by a resumption of the recession.

Why another economic hurricane? Because of gigantic debt, currency problems, taxes and inflation, Rogers says. In other words, the financial markets face new problems that will affect the market.

Interestingly, this is the first time in Rogers' life he's not short any stocks (a bet their prices will fall) because, as explains it, he doesn't see many areas of excess in the market. Likewise, we're having a powerful rally, which means, he believes, the market should be okay for a while.

New York University's economics professor Nouriel Roubini, who called the current financial crisis and recession and was widely ridiculed for being such an economic sourpuss, is a member of the Yogi Berra school which argues "it ain't over till it's over." And that's how he views the economy. Roubini, who had been saying he expects the recession to wind up by year end, now suggests any recovery will be temporary in nature.

Why so? Because this economic grizzly, who's been making the editorial rounds, is now proclaiming that we could tumble back into a recession in late 2010 or early 2011 because of shoddy or little job growth, ballooning government debt and rising oil prices. Roubini reckons we'll see puny economic growth of about 1% a year over next few years and he looks for the jobless rate (now at 9.5%) to peak at around 11%, leading to another 13% to 18% decline in home prices.

His projected low GDP numbers are particularly worrisome because GDP growth of at least 2.5% is generally required to produce a meaningful pickup in jobs.

British economist J.C. Spender, a professor of economics at the Open University Business School in Milton Keynes and a noted academic, thinks a double-digit recession is the most likely course from here. At this moment, he says, the downside economic risk is significantly greater than the upside potential. Spender figures if he's right about the double dip, it could well precipitate another financial panic, meaning, of course, more people will lose their homes and jobs and stock prices will head lower.

As he sees it, at this juncture there is no prospect of a sharp pickup in economic growth stemming from the consumer or consumption. Nor does he envision any action being taken to generate long term infrastructure spending as a means of invigorating the economy.

Given the stimulus package and more money being pumped into the system, Spender says it's now clear the financial system has been saved. But at what cost, who knows?

Ominously, he expects considerably more pressure on the middle class. The kind of economy sustained from 1950 to 2006, primarily driven by middle class consumption (such as clothes, travel, bigger cars, housing and massive spending on electronics) is basically history.

"We're never going to see the old days again," Spender says. "We'll have to find new days. We're looking at a new world, which may well be a frugal world with a higher savings rate."

Given the rising Dow and the bonuses, life may be okay for the Wall Street and Hamptons crowd, but in the real world, Spender says, the quality of life and the standard of living we've had in the past will fade and become a distant memory.

If he's right, how does he explain the huge stock market rally? Plagiarizing a well-publicized phrase from former Fed chief Alan Greenspan, Spender ascribes it to "irrational exuberance."

Call it, he says, "a desperation to want things to be better. But as I just mentioned, we're never going to see the old days again."