Dr. Doom sees risk of a double-dip recession
Filed under: Economy, Investing
Nouriel 'Dr. Doom' Roubini, the New York University professor who two years ago predicted the global financial crisis, said the risk of a double-dip recession for the global economy is rising due to the decline in monetary and fiscal stimulus.
In a op-ed column in The Financial Times, Roubini forecast that the global economy will bottom in the second half of 2009. The recession will not end in the U.S., U.K., and in selected other European countries before the end of the year, he said, adding that the recovery has already started in China, France, Germany, Australia, and Japan.
Central bankers and policy makers in the world's major economies have committed more than $2 trillion in monetary stabilization and fiscal stimulus to cope with the worst global recession since the Great Depression. In a speech delivered at the Kansas City Fed's annual weekend symposium in Jackson Hole, Wyoming, U.S. Federal Reserve Chairmen Ben Bernanke cautioned that the recovery is likely to be muted, adding that the central bank would not soon remove all stimulus added to stabilize financial markets.
Policy makers between a rock and a hard place
Further, as his moniker implies, Roubini, is not one to sugar-coat analyses, predicting that policy makers will likely to face one of two difficult choices.
If they remove monetary stabilization and stimulus funds too soon, central bank and government officials may undermine the recovery and tip their economies into a condition he called 'stagdeflation' - a recession with deflation.
On the other hand, if they maintain large and in some cases unprecedented budget deficits, nations will be punished by bond market vigilantes and inflation hawks, with rising inflation expectations pushing long-term government bond interest rates significantly higher, Roubini wrote, which will lead to stagflation - a recession with inflation.
The most likely economic track, according to Roubini's analysis? A U-shaped recovery, with growth "anemic and below-trend for at least a couple of years," he wrote. Rising unemployment, a global economy that's been altered by the financial crisis, and weak corporate profits are among the reasons why the recovery won't be V-shaped, or strong, Roubini said.
Also, energy prices, particularly oil, are rising faster than justified by economic fundamentals, and could substantially hurt global growth, he said. He said last year's $145 oil price was the tipping point for the global economy in terms of disposable income for oil importing countries and trade. "The global economy could not withstand another contractionary shock if similar speculation drives oil rapidly toward $100 a barrel," Roubini said. Oil traded up 10 cents early Monday to $72.74 per barrel.
Economic Analysis: Lest any investor become giddy about the size of the recovery, we have economist Roubini to take the mood in the room down a notch, as he 'did not disappoint with his sobering analysis.'
Even so, the forecast could prove to be beneficial, if policy makers heed Roubini's analysis and warnings. First, central bankers should withdraw stimulus slowly: in the case of the United States, only after its economic recovery has gained traction. Second, Roubini's analysis underscored the need for emerging market nations to create engines of growth in their economies via increasing domestic demand: the United States, due to high unemployment, will likely to be the caboose, not the engine of growth in this recovery. Finally, measures must be taken to remove speculation from oil markets. Roubini noted the impact speculators and flavor-of-the-month asset chasers will have on the global economy: they'll hurt it substantially, if oil continues to trek toward $100 per barrel.
Reader Comments (Page 1 of 3)
8-24-2009 @ 1:22PM
LIGHTREPORT said...
The recession was triggered by the real estate crash due to the ARM loans and resulting foreclosures and loss of equity by all property owners---unless the real estate catastrophe is CORRECTED--the SECOND WAVE OF FORECLOSURES WILL BE even larger, resulting in possibly the complete collaspe of the USA economy and the resulting impact on the global economy--probably leaving China as the only one with a "nickel in his jeans!"
The foreclosures continue to rise, depleting equities --by 2010, over 50% of usa homeowners will OWE MORE MONEY ON THEIR HOMES THAN THEY ARE WORTH. The recovery of equity could take a decade--a smart person will through the keys to the lender and walk on these horrific home investments-resulting in a tidal wave of new foreclosures--plunging prices ever further down.
OBAMA'S TERRIBLE LOAN MODIFICATION PLAN
Obama's loan modification program has made it even more difficult for the average american to get an improved loan---100+ pages of application, mounds of documents required and exhaustive red tape make it nearly impossible for most people to qualify. The plan has actually damaged the real estate market.
FORECLOSURES & LOSS OF EQUITY ISSUES MUST BE ADDRESSED & CURED!
Nothing is just going to "go away" on its own-- while the real estate market is further collasping in the US, the leaders are dilly dallying with "health care" issues--like painting your toe nails when you leg has gangrene. It is pretty shocking that the Harvard think tanks and the brainiacs in power can't see the real issue in front of them--cure the foreclosures and loss of equity are we are finished financially
Reply
8-24-2009 @ 3:36PM
Breezy said...
I agree with what you are saying however it is more than just the banking industry/mortgage programs that have dragged this country into a recession. In a word it was pure and simple GREED. Greed exists in every industry. Businesses depend on consumers needing their goods or services and when someone at the top gets greedy and starts laying off people on the bottom, then the next level up, and so on and so forth, the foundation of people who used to be able to afford their goods and services collapses and then the mighty tumble. Of course anyone who was talked into taking out a risky mortgage on a house they truly couldn't afford was just as stupid as the person or persons who designed the lending program. I wasn't for the bail outs to the companies that caused this problem, I would have rather the money be given to the people who truly needed it. Additionally, we have far too many people pulling from government funds that aren't completely entitled. If an illegal immigrant shows up at an ER, why should I pay for weeks and months of medications and treatments because they are uninsured. Give them a bandaid and a plane ticket home. Any non citizen on unemployment or welfare should be sent home. Immigration should be stopped at this point when we can't find jobs for the citizens of this country, why allow more unemployed people in. Healthcare should be affordable and plentiful to the legitimate citizens of this country.
8-24-2009 @ 3:33PM
pops said...
This cat is on the ball!!! End those wars . Our Generals are incompetant and have low intelligence. Get rid of the illegals. No health program as welfare for everyone.
8-24-2009 @ 4:12PM
Jeff said...
LIGHTREPORT---You are RIGHT! Except I would add, no GOOD JOB equals a very slow recovery. People have to have money to spend in order to maintain our mostly consumer driven economy.
8-24-2009 @ 7:37PM
sharon said...
OMG-well said. I've been saying all along, until they fix the housing market the ship will sink! I can see where home prices are starting to climb back up and some homes that are selling now, you have to bid on them! Deja vu, been there and done this!
8-24-2009 @ 2:55PM
DAMIAN said...
WAIT....THE WOST IS COMING..SAVE MONEY BUY GOLD!
Reply
8-24-2009 @ 6:45PM
curly said...
Hey Damian
It' worst not wost. Did you finish third grade?
8-24-2009 @ 3:20PM
Duke said...
The recession will get deeper this winter becasue car sales will be almost non existent. Home sales will drop off as well becasue those that could afford a home have already bought one the rest will stand pat or go into foreclosure. Also there are more factories to close and jobs related to those factories will be lost as well. In addition the national debt is at $11 Trillion US dollars. This is a recipe for disaster. Taxes will have to be raised to pay for this and then there is the health care program which will also raise taxes even further. This is not the time to add more tax burden to the tax payer but throw Cap and Trade on the heap and it will mean far less money for the consumer to spend thus sending the economy even further into the Great Recession. Then there is inflation which will be coming and it too will send the economy right back into recession before a full recovery can take root.
Reply
8-24-2009 @ 3:24PM
beaucphs said...
"Finally, measures must be taken to remove speculation from oil markets. Roubini noted the impact speculators and flavor-of-the-month asset chasers will have on the global economy: they'll hurt it substantially, if oil continues to trek toward $100 per barrel."
Words of wisdom. However, Goldman Sachs controls our government.
If our government does nothing to remove speculation from the oil markets, we, the people, will have to take these greedy bastards out.
Reply
8-24-2009 @ 3:37PM
PETE said...
DR. DOOM has a sunny disposition...compared to the average American when it is time to pay the bills. The customer has been layed off/out sourced/off shored and fired.
Reply
8-24-2009 @ 3:38PM
ajgorm said...
On the other hand, if they maintain large and in some cases unprecedented budget deficits, nations will be punished by bond market vigilantes and inflation hawks, with rising inflation expectations pushing long-term government bond interest rates significantly higher, Roubini wrote, which will lead to stagflation - a recession with inflation.+++>>Oil will finish us off BUT==>>STAGFLATION is what we HAD..Deflation and inflation is what we have. The fed inflating financials while unemployment is deflating consumers in a consumer driven market. SOOOooo capitalism and communism is the same thing capitalism is a smaller version of communism. But it does not equate to socialism Obama has it wrong or should I say BERANKE has it wrong WHO KNOWS.
Right- governments maintaining budget deficits by printing more money would lead to hyper inflation of the strangest kind..I would say it may cause GLOBAL WARMING so we might need some extra carbon credits and another round of cash for clunkers and a gift certificate to make us spend again. CONSERVE is the answer it is our only TOOL.
Reply
8-24-2009 @ 3:46PM
bfash said...
I said this for the past 2 years. Oil is to critical to the world's economy to let it be manipulated by futures traders. There is no reason it has to be as high as $100.00@barrel except for the traders making money off of it!! The Fed should step in A.S.A.P. and take control of the oil pricing. If oil go's to $100.00 again it will be another financial disaster.
Reply
8-24-2009 @ 4:54PM
Michael said...
I totally agree with you, and Dr. Doom. If oil is allowed to get out of hand by not regulating or taxing the hell out of traders and oil companies , this recesssion will make the 1930's depression look like a boom era.
8-24-2009 @ 5:18PM
Makeithapn said...
So very correct. This is definitely where regulation needs to take a strong hand. The commodity markets are out of control and are being manipulated for the benefit of those with wealth. The traders took control of the oil market and made a killing on the backs of the working poor. Does anyone remember the Glass-Stegal Act? At one time the banking industry was regulated before Phil Gramm - R, chairman of the Senate Banking Committee and the rest of his cronies, decided that regulation was not in the best interest of banking. And how are the banks doing now?
8-24-2009 @ 3:55PM
john said...
Even a broken clock is right twice a day. Dr. Doom has been playing this song all through the secular bull market from 1982-1999. Don't try to time a market just invest in a way that is consistant with your objectives and risk tolerance.
Reply
8-24-2009 @ 3:57PM
bob said...
It willl get worse. Morg. hard to get housing prices down the drain. Comm property is the next to go down. Auto will be down etc. The #1 place the GQ public got there money from was the rise in the value of there home. Thats not happining any more. We all shell see double-dip recession i will bet he is right.
Reply
8-24-2009 @ 4:25PM
Realist said...
ENERGY PRICES are what started our massive economic downturn. Until speculation in energy is stopped, there will be NO lasting recovery. Its amazing to me that the "experts' are just now getting around to MAYBE doing something about oil speculation. Here is my speculation - government is part of the problem - not the solution. Until our country is returned to its citizenry - we will be subject to economic enslavement TFN.
Reply
8-24-2009 @ 4:26PM
Mike said...
We've only just begun. In addition to the pending storm in a number of areas, some mentioned here, we will still be looking into a double barrel disaster. High taxes, and a return to high fuel costs. This is not going to end well.
Reply
8-24-2009 @ 4:27PM
OLDS 355 said...
SURE! WHAT DID ANYONE THINK WOULD HAPPEN WHEN YOU THROW A TON OF MONEY INTO A SYSTEM THAT DID NOT EARN IT? THEN CREATE 110,000 GOVERMENT JOBS< AND BUY THE WAY WHO GOT THOSE JOBS? HUMMM!!! WE WILL SOON FIND THAT OUT, WAIT AND SEE.
Reply
8-24-2009 @ 4:55PM
Michael said...
Dude, lay off the coffee. With your capital letters it looks like you are about to have a stroke over this.
Stroke out when it happens, you are not going to turn anybody by blogging on aol.