?Double-dip recession? is an economic jargon that is in vogue these days. The origin of the word is in a popular sitcom called Seinfeld. In a classic episode, Jerry Seinfeld?s best friend, George, commits a disgusting food etiquette faux pas at an elite party. He dips his corn chip in a common bowl of sauce, takes a bite and then quickly dips his half-bitten grub in the common bowl again. The entire episode rotates around this unsavoury and unhygienic act of ?double-dipping?, which is how the expression became popular. A double-dip recession is a dip?an economic downturn that technically ends with a fleeting period of growth, but is quickly followed by a second dip?another period of unsavoury economic declines. In the real world soap opera called the ?global economy?, the economic potboiler is being played out by a cast of characters such as an unwieldy government deficit, a demanding tax regime, a sceptical consumer base and an anaemic labour market, to name a few. Let?s look at each of these characters to see which way the show seems headed.

All large governments are taking steps to reduce spending. At the last G-20 meeting held in June, all the 20 members pledged to cut their deficits. In India?notwithstanding possibilities of an even higher inflation and a prohibitive political cost?the government has already slashed fuel subsidy, which would reduce the country?s fiscal deficit by more than Rs 50,000 crore. Almost all the countries in Europe, notably Greece and Spain, have begun instituting comprehensive austerity programmes. In the US, deficit hawks recently voted down a Bill that would have extended unemployment benefits so as to curtail government expenditure. Countries are now caught choosing between cutting spending that could risk stunting growth or providing additional stimulus to pump life back into the fragile recovery. It is estimated that over the next year, spending cuts throughout the developed world will chop a full percentage point off from GDP growth globally.

Most governments plan to reduce their deficit by not just reducing costs but also by increasing revenues. Last month, the new coalition government in Britain hiked VAT and capital gains tax, a package that has already been dubbed as ?bloodbath?. For high fiscal deficit countries, it?s not a question of whether taxes will go up, it?s more a question of when. In the US, virtually all the tax cuts provided in 2001 and 2003 by former President George Bush, popularly known as ?Bush tax cuts?, expire at the end of this year and are unlikely to be extended. A popular corollary in economics states that tax hikes reduce GDP growth and empirically, the ratio is supposed to be 3:1, i.e., if taxes go up by 1% of GDP, then GDP falls by 3%. The tax cuts that expire this year are equivalent to a 2% jump in taxes as a percentage of GDP. Consequently, GDP growth next year should be 6% lower than what it would have been without the tax hike. This in itself could be a catalyst that can make the chances of a second dip pretty high and reasonably imminent.

It is of small irony in this soap opera that lawmakers, such as Senator Ben Nelson, who were instrumental in passing the ?Bush tax cuts??which cost the US government a cool $1,300 billion?have recently voted to cut unemployment benefits, worth a small $77 billion in comparison, on the grounds that the government couldn?t afford it! The unwieldy government deficit is now refusing to nurse the anaemic job market. The Euro area unemployment rate is 10%. Now, these are official figures and government officials tend to use seasonally adjusted measures that are usually conservative, so as not to make it seem that they are not doing enough. The unemployment rate in the US is currently 9.5%, a far cry from the less than 6% levels in the worst of times since 1940s. Even that is a conservative estimate because job seekers who remain without jobs for more than 26 weeks have lost unemployment benefits because of government spending cuts. They don?t necessarily list themselves with the State Unemployment Office, resulting in an understated unemployment figure. A recovery without jobs can only flatter to deceive because high unemployment instigates low consumer confidence and spending. A weak labour market, accompanied by gloomy consumer confidence and sceptical consumer spending, raises the spectre of the economy falling back into recession.

The governments in the US and Europe seem to be out of ammunition. They have already deployed monetary policy measures to the fullest extent possible and have cut down interest rates to levels that cannot go any lower. They are now in a precarious position where they cannot provide any more fiscal stimulus, so as to not hazard the credibility of government?s finances, like in the case of Greece. They need to cut down spending and hike taxes while the recovery is faltering. In the past, governments could allow tax cuts to stimulate GDP growth and could afford fiscal measures to find their way out of recession. That isn?t an option this time around. After one of the deepest recessions since the Great Depression, the last thing the global economy and the ranks of the unemployed need is a second period of negative economic growth. It is a daunting prospect.

The author, formerly with JPMorgan Chase, is CEO, Quantum Phinance