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No Defence Left Against Double-Dip Recession, Says Nouriel Roubini

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The United States, Japan and large parts of Europe have exhausted their policy arsenal, leaving them defenceless against a double-dip recession as recovery slows to ‘stall speed’.

The US has run out of bullets,” said Nouriel Roubini, professor at New York University, and one of a caste of luminaries with grim forecasts at the annual Ambrosetti conference on Lake Como.

More quantitative easing (bond purchases) by the Federal Reserve is not going to make any difference. Treasury yields are already down to 2.5pc yet credit spreads are widening again. Monetary policy can boost liquidity but it can’t deal with solvency problems,” he told Europe’s policy elite.

Dr Roubini said the US growth rate was likely to fall below 1pc in the second half of the year, despite the biggest stimulus in history: a cut in interest rates from 5pc to zero, a budget deficit of 10pc of GDP, and $3 trillion to shore up the financial system.

The anaemic pace compares with rates of 4pc-6pc at this stage of recovery in normal post-war recoveries.

We have reached stall speed. Any shock at this point can tip you back into recession. With interbank spreads rising, you can get a vicious circle like 2008-2009,” he said, describing a self-feeding process as the real economy and the credit system hurt each other.

There is a 40pc chance of double-dip recession in the US, and worse in Japan. Even if it is not technically a recession it will feel like it,” he added.

Hans-Werner Sinn, head of Germany’s IFO Institute, said the US would have to purge its debt excesses the hard way.

The bitter truth is that there is no way out of this with monetary and fiscal policy. They will just have to see their living standards go down. I see a decade of difficulties for the US,” he said.

Dr Sinn said the US the market for mortgage securities (CDOs) had collapsed from $1.9 trillion in 2006 to just $50bn last year, leaving the US property market reliant on federal agencies.

“The world is simply not willing to buy these dubious financial products again. Germany is leaving, China is no longer there, and Japan is pulling away. The US system of mortgage finance is on government life support and that cannot drive a sustainable upswing,” he said.

Harvard Professor Niall Ferguson said the US has exhausted fiscal stimulus given warnings from the Congressional Budget Office that interest payments as a share of tax revenues will reach 20pc by 2020 and 36pc by 2030 without drastic retrenchment.

“The fiscal crisis seems to be out of control. The 'big crossover’ is approaching when the US spends more on debt service costs than on security, and historically that is the tipping point for any global power,” he said.

Roubini appears to have left his cheerleadering hat at home for this, wasn't it a few weeks ago he was urging more spending to avoid a double dip when he had his govt cheerleadering hat on now he's saying they've run out of options.

Looks like he's expecting a solvency crisis next?

Still I'm sure it's contained and the recovery won't stall.

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Surely by implication he's accepting the policies he was cheerlesding -ZIRP and fiscal stimulus - were wrong

No expert is ever wrong, circumstances changed you see since there prediction if they could have had all the facts then they could have projected better results and wouldn't have made a mistake outside of their control.

The system needs to deleverage sadly this can't be done in a pain free manner.

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When the rats start jumping overboard you know the ship is about to sink

Scary - but we all know there is inevitably going to be another leg down very shortly

My prediction for the UK is Stagflation

As for Deflation (apart from house prices and the stock market) :lol::lol::lol::lol::lol::lol::lol:


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i thought this article was interesting.

if you scroll down you'll see a chart overlaid with 5 or 6 of roubin's market calls this year- every single one of them completely wrong.

Nouriel Roubini Stock Market 20% Drop Forecast, Time to Buy?

You want air time on the media you've got to make predictions. If your making a prediction people think you are more of an expert than if you say I haven't a clue what will happen in the future. I think if you look at most expert predictions they will be wrong. Roubini called the crash wrong because of his timing.

Keynes during the early 20's said the Mark would collapse and made the bet with his own money, he got his timing wrong and lost a fortune, if he'd have waited a few months more before making the bet he would have made a fortune, timing is everything.

You cannot predict the future if you do make a right call it was down to luck and not your predictive ability.

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  • 418 Brexit, House prices and Summer 2020

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      • down 5% +
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