Double Dip or Muddle Through?

Edward Harrison, via nc links:

If we see a significant reduction in policy stimulus in the US, along with Europe and China, I anticipate we will see the next downturn by 2012 or 2013 at the latest. Again, this is my baseline case. As I said in March 2008 when the credit crisis was raging, “I expect the likely outcome for the next decade is one of sub-par global growth with short business cycles punctuated by fits of recession”.
On the other hand, austerity-light would be my preferred outcome (more stimulus is not a likely outcome; I assign this lower odds, which makes sense given how the debt ceiling debates have developed). Austerity-light could produce a muddle through scenario, which I am hoping for. That is much more benign for jobs, banks, stocks, and corporate bonds and less benign for Treasuries.

I would put the odds on double dip, only because I think people underestimate the effects of the cutbacks in government spending.  All the people laid off by state and local governments will be a drag on an already painfully slow recovery, which will lower confidence and reduce spending.  Given the trend of the job numbers, I expect that this fall will be the beginning of the new recession.  Actually, I would say that it is really all part of one large depression, but the difference is minor.