Nouriel Roubini: "Global economy is headed toward a sharp slowdown. Fasten your seat belts."

[Better Believe It]

Double-Dip Days
By Nouriel Roubini
July 16, 2010

NEW YORK – The global economy, artificially boosted since the recession of 2008-2009 by massive monetary and fiscal stimulus and financial bailouts, is headed towards a sharp slowdown this year as the effect of these measures wanes. Worse yet, the fundamental excesses that fueled the crisis – too much debt and leverage in the private sector (households, banks and other financial institutions, and even much of the corporate sector) – have not been addressed.

The global slowdown – already evident in second-quarter data for 2010 – will accelerate in the second half of the year. Fiscal stimulus will disappear as austerity programs take hold in most countries. Inventory adjustments, which boosted growth for a few quarters, will run their course. The effects of tax policies that stole demand from the future – such as incentives for buyers of cars and homes – will diminish as programs expire. Labor-market conditions remain weak, with little job creation and a spreading sense of malaise among consumers.

The likely scenario for advanced economies is a mediocre U-shaped recovery, even if we avoid a W-shaped double dip. In the US, annual growth was already below trend in the first half of 2010 (2.7% in the first quarter and estimated at a mediocre 2.2% in April-June). Growth is set to slow further, to 1.5% in the second half of this year and into 2011.

Whatever letter of the alphabet US economic performance ultimately resembles, what is coming will feel like a recession. Mediocre job creation and a further rise in unemployment, larger cyclical budget deficits, a fresh fall in home prices, larger losses by banks on mortgages, consumer credit, and other loans, and the risk that Congress will adopt protectionist measures against China will see to that.

So, as the optimists’ delusional hopes for a rapid V-shaped recovery evaporate, the advanced world will be at best in a long U-shaped recovery, which in some cases – the eurozone and Japan – may be long enough to stretch into an L-shaped near-depression. Avoiding double dip recession will be difficult.

Fasten your seat belts for a very bumpy ride.

Read the full article at:

http://www.project-syndicate.org/commentary/roubini27/English

[marmar]

1. I actually think he's being optimistic.....

nt

[Warpy]

2. He's been right more than he's been wrong

but if this country can avoid the austerity craze sweeping Europe, it might escape the worst of it.

If the deficit hawks and other morons get their way, it's going to be very unpleasant for everybody.

[Better Believe It]

3. The bondholders must be protected and made whole even if it means a depression for working people.

This seems to be the consensus developing among the ruling elite in Europe and the United States and in the leadership of both major parties in the United States.

[Timbuk3]

4. Has all the stimulus money been spent?

I thought roughly half of it was yet to be spent.

Or are people speculating that the GOP will win back the congress and go back to handing all the cash to the wealthy?

[Better Believe It]

5. Only a small portion of the "stimulus" was for direct job creation.

Most of it was for tax cuts, assistance to states and unemployment compensation. Only a small percentage is left to be spent this year and a little next year and not all of it is for job creation.

Perhaps someone can look up the exact amount that remains for actual jobs.

Roubini didn't like the small amount of funds included in the "stimulus" bill for direct job creation calling it "puny".

[reformist2]

6. It's true. The stimulus bill was mainly a stopgap measure.

It seems the main focus was to tide the states over during a "rough patch", with the assumption that the economy would somehow rebound in two years time. I don't think the people who designed this bill thought the US economy was broken. Others argued for greater stimulus because they saw no obvious engine that could drive growth (the way the housing bubble got us out of the last recession.) I guess we're about to find out who was right...

[Timbuk3]

7. OK, thanks

I was curious about that. It's confusing when I also hear talk of the stimulus being "too small" and that "another stimulus is needed".

I'm all for Keynesian economics. Trickle down is a complete and utter failure.

[xchrom]

8. we're gonna see in the next few months if he's right i think. nt

[blindpig]

9. Yep

This crisis of over-production has not been resolved, the fat cats find the 'investment climate' lacking(not enough potential profits) so they are sitting on their money and without investment there will be no great job creation since our government maddeningly refuses to do so. Seems that even squeezing the blood from our society's turnip in the form of privatization of education, etc, ain't enough, mebbe getting their hands on our retirement money won't be enough either.

It took 2 world wars to open up the 'investment climate' last time.....

We better kill capitalism before it kills us.