Roubini on what's ahead

[30ashopper]

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.

Private-sector deleveraging has barely begun. Moreover, there is now massive re-leveraging of the public sector in advanced economies, with huge budget deficits and public-debt accumulation driven by automatic stabilizers, counter-cyclical Keynesian fiscal stimulus, and the immense costs of socializing the financial system?s losses.

At best, we face a protracted period of anemic, below-trend growth in advanced economies as deleveraging by households, financial institutions, and governments starts to feed through to consumption and investment. At the global level, the countries that spent too much ? the United States, the United Kingdom, Spain, Greece, and elsewhere ? now need to deleverage and are spending, consuming, and importing less.

But countries that saved too much ? China, emerging Asia, Germany, and Japan ? are not spending more to compensate for the fall in spending by deleveraging countries. Thus, the recovery of global aggregate demand will be weak, pushing global growth much lower.

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.

..

Double-Dip Days - Project Syndicate

Rather bleak outlook unfortunately. He cuts to the chase though. There is no easy way out of this.

 

[Lynnie]

Well, I do believe in the power of the spoken word. Say/Hear it enough and then you start to believe it and then it will happen.

 

[Dwight Williams]

Unfortunately he's one of those economists who has made a name for himself by always being right.

 

[idlewind]

It would pay us all to listen and begin to act. More spending is a black hole headed for disaster.

 

[scooterbug44]

We all knew there were going to have to be some big changes and some tough times before we recovered - seems like a pretty good analysis.

 

[futurebeachbum]

I don't think that we, as a nation, still have the will to get through really tough times or a really big crisis.

We haven't seen leaders in DC deal effectively with the relatively small crises that have happened in the past 20 years.

Why should we believe that those same people can lead us effectively through a really big crisis?

 

[30ashopper]

I don't think that we, as a nation, still have the will to get through really tough times or a really big crisis.

We haven't seen leaders in DC deal effectively with the relatively small crises that have happened in the past 20 years.

Why should we believe that those same people can lead us effectively through a really big crisis?

Worse, they do everything they can to try and make it seem like we can avoid it. When the cards finally fall, a lot of politicians are going to be out of a job. We're already starting to see this in the November elections.