Roubini Joins Chorus Warning Of Double-Dip Recession Risk

[Joanne98]

A growing consensus of noted economists (with some of these economists also being highly-respected bloggers on the economy) are concurrently voicing heightened concerns about us facing an increasing risk of entering into a double-dip ("W-shaped") recession, or a prolonged, U-shaped recession (perhjaps with a bump in it, which some are also calling a double-dip), or worse. Today (Monday), this group added one more member to their roster: NYU progressive, neo-Keynesian Nouriel Roubini.

We're talking: Paul Krugman, Ed Harrison (CreditWritedowns.com) , Yves Smith (NakedCapitalism.com), The Economist magazine staff, and as of today, Nouriel Roubini. (My apologies to the many I'm leaving off of this list, but it would also include Stoneleigh and Ilargi over at The Automatic Earth, Mish Shedlock, and Barry Ritholtz, to name just a few others.)

These are leading economists, online and in the MSM, and they're all now saying pretty much the same thing...


bobswern's diary :: :: Bloomberg is reporting this morning that Roubini, in published commentary in Monday's Financial Times (I'm relying upon the Bloomberg report, since I can't access a link for the Financial Times' piece, at least for the moment), has noted the following: "Roubini Sees Increasing Risk of Double-Dip Recession."



Roubini Sees Increasing Risk of Double-Dip Recession
By Shamim Adam

Aug. 24 (Bloomberg) -- Nouriel Roubini, the New York University professor who predicted the financial crisis, said the chance of a double-dip recession is increasing because of risks related to ending global monetary and fiscal stimulus.

The global economy will bottom out in the second half of 2009, Roubini wrote in a Financial Times commentary today. The recession in the U.S., the U.K., and some European countries will not be "formally over" before the end of the year, while the recovery has started in nations such as China, France, Germany, Australia and Japan, he said.



"STAGDEFLATION"

Roubini further warns of economies tipping back into something he refers to as "stagdeflation," which he explained as being a combination of recession and deflation--with that phenomenon being something he says will happen if governments "...raise taxes, cut spending and mop up excess liquidity in their systems to reduce fiscal deficits."

On the other hand, Roubini warns that some national economies that maintain large budget deficits will, in turn, get hammered in the bond markets, and that they may face "stagflation" (the combination of recession and inflation, something the US faced in the late 1970's), in part due to increased borrowing costs being imposed upon their respective nations' government bonds (debt).

He noted:



"...Policy makers are damned if they do and damned if they don't."

--SNIP--

The U.S. must address the massive amounts of "monetary medicine" that have been pumped into the financial system and now pose threats to the economy and the dollar, billionaire Warren Buffett said last week.

Roubini currently expects a U-shaped recovery, where growth will be "anemic and below trend for at least a couple of years," he said. A full global recovery from the current recession may take two years or more, Nobel laureate Paul Krugman said earlier this month.

Rising unemployment, a global financial system that is still "severely damaged" and weak corporate profitability are among reasons why any recovery won't be V-shaped, Roubini said.



Towards the end of his commentary, Roubini voiced concern that energy and food prices--especially if they continue to be driven up by speculative investors--are rising faster than warranted by their respective fundamentals, which raises even greater concerns relating to the increased risk of a double-dip recession.

He noted that the global economy "...could not withstand another contractionary shock if similar speculation drives oil rapidly toward $100 a barrel."

##

Roubini's comments relating to a very extended, U-shaped recovery, and/or the increased risk of us entering into a double-dip (W-shaped) recession--IMHO, the difference is more technical than anything else, since it's a relatively short period of roughly six months that he's discussing where we MAY segue from one leg of a double-dip recession into another-- parallel, quite closely, the comments made over the weekend by Nobel laureate economist Paul Krugman, as I covered it in my diary, entitled: "Krugman: 'Some call it recovery.'"

Krugman further expounded on this over the weekend during an appearance on "ABC's This Week." DKos diarist ManFromMiddletown reported on this in an outstanding diary on Sunday, entitled: "Krugman: Welcome to 'Economic Purgatory.'"

In the piece, Krugman talks about the self-evident dichotomy that we may be entering into a technical recovery, but things are, most likely, going to be downright awful for the foreseeable future.

He tacitly wonders aloud whether or not we're going to end up in heaven or hell (the clear implication being that the economy could just as easily go "south" rather than "north" over the next 6-12 months).

##

Ed Harrison, the publisher of the CreditWritedowns blog, and a frequent guest-poster over at Naked Capitalism, has made similar, very extensive sentiments over the last few months, culminating in something he published a week ago, which I covered in a diary last Monday, entitled: "When The Spin Of Summer Belies The Fall."

Here's the link to Harrison's post: "Weak Consumer Spending Will Last For Years."

Continued>>.
http://www.dailykos.com/storyonly/2009/8/24/771549/-Roubini-Joins-Chorus-Warning-Of-Double-Dip-Recession-Risk

[mother earth]

1. There's no mystery. Until real jobs that pay living wages

are available, the unemployed will not be their prized and coveted consumers. Why don't they get this? Sending our jobs overseas and importing cheap workers here has given us our present day woes. Our standard of living is taking a nose dive that correlates with our lack of employment.

No middle class....no recovery.

[fasttense]

2. But, CEOs are seeing profits through firings and lay offs.

(and Wall Street just loves those lay offs) So, only the American Middle class will continue to suffer - for now.

[AdHocSolver]

10. Exactly! Moreover, working Americans pay income and Social Security taxes.

The reason there were government surpluses under President Clinton was because there was high employment under Clinton.

Kevin Phillips, in his book "Wealth and Democracy" describes how all of the great empires of the past collapsed due to the destruction of the middle class. Importing cheap products from vassal colonies (equivalent to the exporting of jobs), plus taxing the public to maintain huge armies to wage continual wars in order to hold on to those colonies, while at the same time maintaining an extravagant life style for the wealthy elite contributed to the collapse of all of those empires.

The wealthy elite do understand that without jobs the U.S. economy is unsustainable. They don't care about the real economy, as long as the government supplies them with enough bailout money to keep their stock market scams going.

After all, if we look at Latin America, the numerous banana republics kept the wealthy in power and luxury for decades despite the fact that the mass of the people lived in poverty. From the perspective of the wealthy elite, they don't need the middle class. The wealthy only need a source of cheap luxury goods (China), a cheap and obsequious servant class (illegal immigrants and "guest" workers), and a compliant military to hold on to their colonies (nowadays, pretty much large parts of the planet).

[Uben]

3. I sold on the rally

I think they are right. I don't see any way the market can continue to rise without jobs. Now, I wait for the right time to jump back in.

Fool me once.............

[AndyA]

4. This is the important point.

Towards the end of his commentary, Roubini voiced concern that energy and food prices--especially if they continue to be driven up by speculative investors--are rising faster than warranted by their respective fundamentals, which raises even greater concerns relating to the increased risk of a double-dip recession.

He noted that the global economy "...could not withstand another contractionary shock if similar speculation drives oil rapidly toward $100 a barrel."

Speculation drove up oil prices in 2008, leading up to the recession. I think this is a huge contributing factor as people strained budgets (or broke them completely) in order to fill up their vehicles to go to work. There was no reason for the high prices. Driving was down, the refineries were full, as were the storage tanks, there were tankers sitting in the water full of oil, with no place to take it.

The speculators are at fault, and in many cases these same people also have a hand in what happened to Wall Street.

And our Congress has done nothing to address this situation. It will be too late once prices start creeping upward again. Wholesale prices have been dropping, yet I haven't seen that reflected in the grocery stores. Why is that?

Congress needs to address these issues if they truly want to end this recession. Until they do, the risks remain very high for a longer recession, or a double-dip recession. Congress needs to stop playing politics and needs to FIX THE PROBLEMS.

[flyarm]

7. AndyA..i keep asking the same question ..and i ask friends and family the same question ..

I could understand when Oil went up so high ..the cost of groceries had to go up...( for fuel for the trucks) ....but now that oil is down..why are the prices still sky high in the gocery store?? Because they can , and did and they don't want to give bacxk the profits now!

But I always have said ..once something goes up..never expect for it to go down again..or if they take something away from you for say "EMERGENCY REASONS" ..never expect to get it back again..it is all a scam..and it is always on the backs of the middle class..

I have in the past year seen my grocery bill at least triple for two people..I cannot imagine what it cost to feed a whole family..Glad i am done with that..but it is now past off on my children's families!

I was just at a barbecue with a bunch of families and all we women were discussing how much our grocery bills have gone up..and the ones with kids were the most vocal..that they are cutting out what they used to think of as staples.

I feel very sorry for young families..it seems like there is no end in sight!

[Bluenorthwest]

8. According to the government, there is no inflation

and prices on food and energy are cheaper this year than last. They say prices are so much lower now, that Social Security beneficiaries will not get a cost of living adjustment, and they claim the same will be true next year. Not inflation, they say, but plummeting prices and 'increased purchasing power for seniors' that is what the administration claims is going on.
I do not agree with them at all.

[westerebus]

5. 2010

Looking forward, at the way the stimulus was set up, we should expect 2010 to be worst than 2008-9 for main street. The premise that to save jobs and provide cover to the states dwindling budget sources (in the near future), money needed to be in the pipe line ready to go. I can see no evidence it is helping main street in the here and now. It was planned to smooth out the worse portion of the next leg of the recession. A clear sign of what is to come.

Wall Street is no longer dependent solely on the health of the American economy. The expectation is to increase cutting cost and over head and remove capacity. This is on a global scale. Main street is about to take another hit.

I hope I'm wrong.

[dgibby]

6. I don't think you're wrong at all.

In fact, I think this whole mess was planned in order to futher Globalization. There is no way 3rd world countries can compete with the US middle class. Since it's impossible to bring the 3rd world up to our standards, the only answer is to lower our standards, thereby eliminating the middle class.

[mother earth]

9. You are right, but it's the other way around, there's no way

the American middle class can compete, don't forget to factor in little to no labor laws in other countries. Without some form of protectionism, we are screwed. A call for international labor law & human rights issues is imperative, the downside for the guy in China is nobody cares if he sucks in paint fumes or works his fingers to the bone, so long as there's money to be made. Sucks in so many ways.