Nouriel Roubini's Global EconoMonitor

Roubini on CNBC: Rising Risk of Double Dip

CNBC— I discuss whether the chances of a double-dip recession have reached perilous levels in the United States.  (Click for Video)


CNBC — Chances of Double-Dip Now Over 40%: Roubini The chances of a double-dip recession are now more than 40 percent and policymakers have options to stimulate the economy, Nouriel Roubini of Roubini Global Economics told CNBC Thursday.

Second-quarter gross domestic product growth will be revised down to an a annual rate of 1.2 percent from an initial reading of 2.4 percent, Roubini said, adding that any improvement recently was due to inventory adjustments.

Roubini, who is often referred to as “Dr. Doom,” also said that a “series of tailwinds in the first half of the year … are going to be essentially headwinds” in the second half.

The fiscal stimulus will become a drag on growth in the second half of the year, inventory adjustment will have run their course, and there won’t be a favorable comparison with the “awful” first half of 2009, Roubini said. 

In addition, the employment boost from the census survey will disappear, and there will no longer be “a number of tax policies that stalled demand and growth for the future,” he said, citing the cash-for-clunkers program and first-time homebuyer tax credits.

Growth for the rest of the year will be closer to zero than 1 percent, he said.

No More Bullets

From a monetary policy perspective, the scenario is worse than last year, Roubini said, as all of the Fed’s policy bullets will pretty much be gone.

The U.S. can’t run a budget deficit of 15 to 20 percent of GDP, he said. In addition, quantitative easing is unlikely to have any effect in prompting banks to lend.

“Banks today are sitting on $1 trillion of excess reserves that they are not lending out” and earning 0.25 percent on, he said. “Why would they want to lend more if we do more QE?”

The U.S. is facing a “liquidity trap,” which is when financial and credit systems get stuck, Roubini said.

And with companies discounting prices and a glut in the labor market, the biggest threat to the economy is deflation, he said.

“In the short run we may end up like Japan,” he said.

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13 Responses to “Roubini on CNBC: Rising Risk of Double Dip”

GuestAugust 26th, 2010 at 2:00 pm

Title: Chance, deflation…Event: The FIFA World CupVenue: BrazilYear: 2014Hor: !!! The newspaper says USA team has less than 40% chance of winning Brazil tomorrow.Nyun: zzzz… Oh dear, is it possible for the USA team to win anyway, please!Kim: Of course possible, the ball is a sphere, anything can happen.(1 day after)Hor: Oh no! Shhhh! USA beats Brazil 3-1!Nyun: zzzz… oh dear, why is Brazil so lousy, ha ha ha!Hor: the newspaper says more factories in USA will close down by end of this year, so, unemployment is expected to hit a 100 year height, at the same time inflation is going up again!Nyun: zzzz… oh dear, how can unemployment down but inflation up?….Qian: I think the prices of imported goods are going up.Nyun: zzzz… oh dear, why should we import so much, please!Qian: Because we produce less nowadays.Nyun: zzzz… oh dear, why, please!….Kim: Hmmm, errr, we lost our productivity, since…. I don’t know when. Since then, we worked half the Brazilian/Indian/Chinese did, but consumed and enjoy triple, and our children are demanding for more…Nyun: zzzz… oh dear, why?…

economicminorAugust 26th, 2010 at 8:02 pm

Thanks Nouriel,That was good. You laid it out and hammered it home.I don’t know if you caught it but the man interviewing you was in denial of the what is happening to the underlying economy.The following interview with Hoenig was entertaining and explains why the government is doing what it is doing. They are all in denial and have a false faith in their monetary policies.They don’t understand that the first rule of getting out of a hole is to stop digging.They also don’t seem to understand that the consequences of feasting on the geese who were laying the golden eggs is not more gold…Oh well, Good luck to all of us.

GuestAugust 26th, 2010 at 8:25 pm

they don’t understandorthey really really really understand whats going to happen..come on… do you really think they have mediocre advisers / panel / think thank etc etc

economicminorAugust 26th, 2010 at 9:42 pm

YES! I do think that they have mediocre advisers.Why? Because they live in a “Power of Positive Thinking” world where negativism is not tolerated. Where agreement is the only way to advancement. It is also a dog eat dog world. Quarterly profit and hiding the losses is not only accepted but encouraged through the BS accounting systems. Who knows who taught what to whom. Did the government teach Enron and the rest of the corporate banking world or did Enron teach the government and their brethren?The bottom line is that even if someone suspected, they could never bring it up.So NO they really do not understand because they follow the religion of greed, hubris and deception. Even believing their own BS….

11b40August 28th, 2010 at 7:00 pm

Yes – it is willfull ignorance.I am just an old man with a 40 year old business degree from a second rate college. It seems like the Econ 101 class I vaguely recall had a couple of basic principles that were taught like they were as solid as the law of gravity.When I first started hearing about supply-side economics, I did a good bit of head scratching. I always thought that demand essentially created supply (supply somehow materialized to satisfy demand). It took a while, but it looks to me like that equation is coming back around and proving itself to be true. Our financial system was flooded with a supply of cheap dollars that laid the groundwork for all these bubbles, but now the cheap money is failing to attract takers. Imagine that, essentially free money & no demand for it.The other little rule I seem to recall from the first chapter of Econ 101 is the one about Guns or Butter. My professor told us at the time that a nation could have one or the other, but not both at the same time – that it had never worked in the history of the world. That stayed with me pretty well, maybe because at the time I was sweating out my 4-S Draft Deferment an paying very close attention to Viet Nam.Again, I did quite a bit of head scratching when we decided it would be a good idea to fight 2 wars & then were told to go on a shopping spree. To help us finace the shopping spree, we got tax cuts, too! Is this a great country, or what!?Sometimes, I feel a little like Forest Gump.Thank you for your clear and balanced presentations of the unfolding events playing out in this economy, ‘economicminor’. I always enjoy your posts. Too bad you didn’t become and economic major…NO,wait! I take that back. That would have almost certainly ruined you.Independent Contractor

sAugust 30th, 2010 at 1:27 am

More on demand and supply, and Bernanke’s blindness:Bernanke’s recent Jackson Hole speech didn’t contain one reference to the key force driving the American economy right now: private sector deleveraging. (Steve Keen, )In 2007-2008, GDP was $14.3 trillion while the change in private sector debt was $4 trillion, so aggregate private sector demand was $18.3 trillion. In calendar year 2009-10, GDP was $14.5 trillion, but the change in debt was minus $1.9 trillion, so that aggregate private sector demand was $12.6 trillion. The turnaround in two years in the change of debt has literally sucked almost $6 trillion out of the US economy.That sucking sound will continue for many years, because the level of debt that was racked up under Bernanke’s watch, and that of his predecessor Alan Greenspan, was truly enormous. In the years from 1987, when Greenspan first rescued the financial system from its own follies, till 2009 when the US hit Peak Debt, the US private sector added $34 trillion in debt. Over the same period, the USA’s nominal GDP grew by a mere $9 trillion.Ignoring this growth in debt—championing it even in the belief that the financial sector was being clever when in fact it was running a disguised Ponzi Scheme—was the greatest failing of the Federal Reserve and its many counterparts around the world.And they still don’t (want to) get it. The arrogance of their self-esteem is (in simple words) too big to fail.

Alex BryanAugust 30th, 2010 at 11:00 am

I am concerned for the long term future financial health of this country. I would like to hear your thoughts about creating wealth.. I believe simply that the true wealth of a country comes basically from 4 areas. these are the 2 F’s and 2 M’s, fishing farming mining and manufacturing. It seems that no one in washington understands this basic fact. If they did they should be developing policies to assist these areas compete on a global basis, particularly in the manufacturing arena. It seems that by creating wealth we can then start to address some of this country’s long term debt issues.I have thought long about how best to advance this simple concept. I am hopeful that you agree and thru your influence you can get a national dialogue started to help this country.

economicminorAugust 30th, 2010 at 11:43 pm

Alex,I am sure glad you can be so optimistic.There is much more to a modern economy than 2F and 2M. There is intellectual property and technology and medicine and ….There is a problem with the first and third. Resource extraction, which includes timber, has reached a peak IMO. No great additional places or resources to extract.. Which means the costs will continue to rise. Oil is in a similar state. We may not have peaked but we are damn close.I like farming but with the cost of oil staying high and it won’t be to many years before NG fracturing has peaked and farming will need to become much more less energy intensive. Also the commercial veggies taste like cardboard. And the Omega 6 in corn is part of why America is so fat.I think that we need to reorganize society around truck farms or community farms. Labor intensive but the product is much better and uses much less oil, NG and water.To me manufacturing implies a lot. In many cases the entire cost of a product are not carried by the consumers as much as the taxpayer the citizens who don’t necessarily use or want much of what is manufactured. The costs of pollution and manufacturing waste, packaging, shipping are seldom carried in the price tag. We need to deal with all those things and much of that is labor intensive. The consequences would be that the cost of most products would go up and the cost of the total labor dealing with the complete cost would sure use up a lot of the unemployed.The other issues with manufacturing waste are the medical costs associated with the dust, fumes and chemicals. In recent times, often passed on or ignored.Then we have the barriers to any one doing anything. When I was growing up, you didn’t need a job, you just did something. I started quite a few business before I was in my 20’s. Small ones but they gave me an income. Today, there are rules, regulation, licensing fees, boards, zoning restrictions, the tax people and on and on. It is not legally possible for a person to just do works any longer. You have to pay to work. And spend countless hours doing paperwork to benefit some bureaucrat or tax collector. No wonder people have to rely upon the government. The government has forced them to.Problem is that now there is not enough actual real income for productive enterprise to support the entire system of bureaucrats, politicians, disabled, unemployed, the banksters and have anything left. So we as a society, were forced to borrow.And borrow and borrow some more. This doesn’t appear to end until the bond vigilante raise the checkered flag and call a halt to the cheap borrowing.. Probably after some major bond failure…Fixing the system is possible.It just won’t start until there is no way to continue. Way to many people with power and personal agendas. They won’t give up what they have easily. Much easier to justify and imagine than give up.The trend is for additional borrowing, slower economy and fewer and more expensive resources. The trend says that the standard of living for most Americans will continue to decline. We really don’t need to build any more McMansions, we should convert many to multi family or even group homes.Bye bye Miss American Pie. Drove my Government Motors to the levy but the levy was dry.. No water to drink and nothing but a dry ditch. Lets hope that it isn’t the day that we die.

Modern Money MechanicsAugust 31st, 2010 at 3:34 pm

This really sums up my emotions with how politics are reacting to the theft of our economy with one exception: Obama is too smart to believe that the system will collapse without the status quo. Obama has to be an active participant in the “plan.” (Read the bold to skim.)One Lump Or Two? By James Howard Kunstler on August 30, 2010 9:38 AMHere come the Corn Pone Nazis!Fox News entertainer, former drug addict, and professional weeper Glenn Beck took center stage at the Lincoln Memorial exactly forty-seven years to the day after Martin Luther King’s “I Have a Dream” speech for a rally dedicated to “restoring honor,” which is tea party code for the otherwise unutterable idea: get Obama out of the White House!Eighty-seven thousand disoriented citizens lined the DC Mall reflecting pool and adjoining lawns to witness Beck overstep his role as a television clown and don the mantle of an evangelist-savior battling the dark forces working insidiously to put the America of WalMart, Walt Disney World, Nascar, and Burger King into the Collapsed Society Hall of Fame — where it’s heading anyway, due to the bad choices these self-same citizens made during an extraordinary bonanza era of cheap oil that is now drawing to a close whether anyone likes it or not. Naturally, Beck invoked prayer against this prospect, which is what people resort to when they don’t understand what is happening to them.Beck himself just seems to be following a career arc more than really answering “a call.” The emptiness of his platitudes and the confusion of his ideas shows that he is just flexing his demagogic muscles in a moment when weepy bluster passes for heroism. Ten years ago he was a cringing drunk contemplating suicide. Then he went shopping in America’s Mall of Utopias for something to believe in and found Mormonism, a “religion” dreamed up by an imaginative young man on the agricultural frontier of western New York during an earlier age of ferment which — guess what — coincided with a decade of economic turbulence. (Anyone interested in the bizarre subject is advised to read Fawn Brodie’s excellent biography of Smith, No Man Knows My History [Knoph,1945].)Of course, what has allowed Beck to occupy center stage is the failure of rational political figures to articulate the terms of the convulsion that American society faces, brought about not by communists and other John Bircher hobgoblins but by the forces of history. The failure at the political center is a conscious one of nerve and will, of elected officials in both major parties playing desperately for advantage in defiance of the truth — this truth being that the USA went broke trying to swindle itself into prosperity. Add to this the failure of the law to go after the swindlers, which has undermined the fundamental belief in the rule of law that enabled this society to function as well as it did previously.Barack Obama personifies this failure these days, a politician proclaiming “change” who not only managed to change nothing, but promoted a continuation of the national self-swindling with legislation so dazzlingly prolix and complicated that no one can claim to have read either the Health Care Reform Act or the Financial Regulation bill, the two hallmarks of his tenure so far, neither of which will change anything about how we do these things. Why Mr. Obama has turned out to be such a weenie remains a mystery. [Not if you accept the idea that is part of a criminal conspiracy.] Even the former communists at Russia Today laugh at the idea that he is a “communist” or a “socialist” and so do I. He certainly appears to be hostage of the more malign forces in society these days — the medical insurance racket, the too-big-to-fail banks, the multi-national corporations. But I don’t believe it’s because he wants to suck up to them, or join their country clubs when his current job ends.My own guess is that he’s been informed that the system is so fragile that if he dares to disturb even one teensy-weensy part of it — for instance, by throwing some executives from Goldman Sachs, Merrill Lynch, et cetera, into federal prison — that said system will fly to pieces in a fortnight. So Obama’s main task for a year and a half has been to desperately apply baling wire and duct tape to the banking system while telling fibs to the public about a wished-for recovery to a prior state. Unfortunately that prior state is the ecstasy of a self-swindle in the moments before it unravels… the sublime feeling of having gotten something wonderful for nothing. We’re beyond that now and nothing on the age-old shelf of nostrums, spells, prayers, and miracle-cures will avail to bring that moment back, though the public does not know this.This is what allows a faker like Glenn Beck to shine. The masses still truly believe that prayer will save them from bankruptcy, foreclosure, penury, the loss of status, and the cut-off of precious air-conditioning, so Glenn steps onto a national monument like an Aztec priest ascending the Pyramid of Huitzilopochtli to soothe the angry god with worshipful incantations, and incidentally maybe a few dozen sacrificial hearts cut out — just as the tea-bagger right-wing glorifies the sacrifices of US soldiers blown up by roadside bombs for the sake of American military adventuring in lost causes like the war to turn Afghanistan into a functioning western-style democracy.Glenn Beck’s sidekick nowadays, Sarah Palin, is exactly the kind of corn pone Hitler that America deserves: a badly-educated, child-like, war-mongering opportunist easily manipulated by backstage extremist billionaires who think they don’t have enough money yet. Sarah Palin is going to run for president in 2012. In the process she’ll turn the sad remnants of the Republican party into a suicide cult, but she might just get elected and you can kiss the 230-year-long experiment in representative government goodbye for good.In the meantime, the financial markets are getting ready to puke, the housing market has yet a million frauds left to unwind, the commercial real estate and retail sectors are crashing, the projects in Afghanistan, and Iraq, too (despite the current hype about the end of the combat mission there), are set to suck a few billion a day out of the system, indefinitely, and the season leading into the holidays is taking shape as a major amplification of all the converging clusterfucks that make these such interesting times. The tea-bagger faction will only get more desperately crazy as a result.The bigger mystery in all this — if I may perhaps engage in some nostalgia of my own — is: what happened to reasonable, rational, educated people of purpose in this country to drive them into such burrow of cowardice that they can’t speak the truth, or act decisively, or even defend themselves against such a host of vicious morons in a time of troubles?

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