LAS VEGAS - Could the United States be headed for another Great Depression?

If the federal government doesn’t raise the debt ceiling it will be, said David P. Kelly of JP Morgan Funds in a panel discussion at the IMCA annual conference in Las Vegas on Tuesday morning.

While 63% of Americans think we’re still in a recession, the reality is that the worst month the U.S. had was in June 2009, almost two years ago, Kelly explained. The media worries about a double dip recession or a slowdown and while that is possible, he said, it’s not probable. “People are saving more, banks are lending more, inventories of autos are falling, the dollar is declining a bit, which is helping our exports grow,” he added. “We are on the mend.”

Investors must decide for themselves whether they think the country will lapse back into a recession or will continue to grow. Kelly believes the U.S. will grow in the second half of the year faster than it did in the first. There is no real inflation in the U.S. – it’s currently only 1% a year. The real worry for inflation is overseas where the interest rates are too low, Kelly explained. “I don’t think emerging markets will tighten enough because of the pain so at some point we will have a boom and bust in the emerging world, such as Russia and India.”

How will the U.S. avoid another Great Depression? By dealing with our debt issues, Kelly said. Raise taxes, cut spending on defense and Medicare and Medicaid, and raise the retirement age. The question is whether we have the political leadership to do it. “If we don’t raise the debt ceiling we will have another Great Depression,” he warned. “We have $1.4 trillion in deficit, which means we have to cut government spending by $1.4 trillion or raise taxes if we don’t raise the debt ceiling.”

One of the biggest worries about our current economic situation, said Kelly, is how low confidence is in the U.S.: “We need to see a return to optimism.”

It looks like there is better news on the horizon, said Bob Doll of BlackRock. “The good news is we are getting better news over the last three months,” Doll said. “We have gotten 200,000 new jobs per month. Jobs are finally coming through. We predict we will gain 2 to 3 million new jobs this year. It’s a step in the right direction. It will keep us going. We just need more confidence.”

What is hurting the economy is borrowers’ lack of confidence to borrow and lenders’ lack of confidence to lend. “The economy is in a post-credit-crisis recovery,” Doll said. “We are in an expansion. But a significant number of people think we are in a depression. No one says we are in an expansion.”

What does that mean for equities? “It will be a spotty recovery,” added Doll. “We are in clear recovery and expansion but a bumpy one. The cyclical stimulus is waning giving way to self-sustained economic growth. Job growth is one of the last parts of an economy to come back and it’s kicking in.”

Doll believes the U.S. will continue to outperform developing markets and outperform Europe and Japan. “Investors should be overweight the U.S.” he said.