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...
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."
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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).
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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."
Weak consumer spending will last for years
Submitted by Edward Harrison of Credit Writedowns
Sunday, August 16, 2009
It has been my thesis for some time that we are seeing a secular change in consumption patterns in the United States. This will have grave implications for a world economy used to seeing the American consumer as an economic growth engine and consumer of first choice. Retail sales in the United States have fallen 10% since peaking in November 2007. Much of this decline represents a permanent fall in consumption by overly indebted American consumers.
--SNIP
The Balance Sheet Recession
Numerous economies seem on there way to recovery: Germany and France, Singapore, and Hong Kong, to name a few, have all posted positive economic growth. China looks likely to hit its 2009 growth target of 8%. But, the U.S., generally assumed to be a leader in recovery, is looking like a laggard. Mind you, there are other laggards like Spain and Ireland too. Why are these countries lagging? The Balance Sheet Recession.
Nomura's Chief Economist Richard Koo wrote a book last year called "The Holy Grail of Macroeconomics" which introduced the concept of a balance sheet recession, which explains economic behaviour in the United States during the Great Depression and Japan during its Lost Decade. He explains the factor connecting those two episodes was a consistent desire of economic agents (in this case, businesses) to reduce debt even in the face of massive monetary accommodation.
When debt levels are enormous, as they are right now in the United States, an economic downturn becomes existential for a great many forcing people to reduce debt. Recession lowers asset prices (think houses and shares) while the debt used to buy those assets remains. Because the debt levels are so high, suddenly everyone is over-indebted. Many are technically insolvent, their assets now worth less than their debts. And the three D's come into play: a downturn leads to debt deflation, deleveraging, and ultimately depression. The D-Process is what truly separates depression from recession and why I have said we are living through a depression with a small `d' right now.
Harrison's post from a week ago--it's almost chilling, in fact--meshes full-circle into Roubini's comments in today's Financial Times.
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Also in my diary from Sunday (see link, above), I quoted from the staff of The Economist magazine: "U, V or W for recovery."
U, V or W for recovery
Aug 20th 2009
From The Economist print edition
The world economy has stopped shrinking. That's the end of the good news...
--SNIP--
...a rebound based on stock adjustments is necessarily temporary, and one based on government stimulus alone will not last. Beyond those two factors there is little reason for cheer. America's housing market may yet lurch down again as foreclosures rise, high unemployment takes its toll and a temporary home-buyers' tax-credit ends (see article). Even if housing stabilises, consumer spending will stay weak as households pay down debt. In America and other post-bubble economies, a real V-shaped bounce seems fanciful. Elsewhere, it will happen only if vigorous private domestic demand picks up the baton from government stimulus. In Japan and Germany, where joblessness has further to rise, that seems unlikely any time soon. The odds are better in emerging economies, especially China. But even there an array of reforms, from a stronger currency to an overhaul of subsidies, is needed to boost labour income and encourage consumption. Until that shift takes place, the global recovery will be fragile and probably quite feeble. A gloomy U with a long, flat bottom of weak growth is the likeliest shape of the next few years.
So, as of today, we now we have Nouriel Roubini joining the chorus.
These are--unlike myself and most others here on DKos--some of the most respected progressive economists of our time. And, they're all telling us virtually the same damn thing!
I fully substantiate all of the following realities in my previous three diaries:
We are seeing record foreclosures in a housing market where sales are up but prices keep plummeting. According to Deutsche Bank, foreclosures will not begin to decelerate until sometime in early 2011.
Unemployment is expected to increase in coming months through a good portion of 2010, and then to level off at unacceptably high levels for many years. (i.e.: Our "new normal.")
Over 500,000 Americans will fall off the unemployment compensation rolls and under the wheels of the poverty bus during the next five weeks, alone. More than 1.2 million more citizens of this country will be in the same boat between now and year's end.
Personal incomes are at dramatic new lows.
Consumer spending is way off previous years' numbers, and it's getting worse.
Gross Domestic Product figures are among the most convoluted measurements issued by our government, today; but, these are still quite pathetic, even now. However, any significant bounce in these statistics would be, at best, highly suspect--and not necessarily indicative of the actual state of our economy--at least in coming months, if not years.
Our social safety net is in shreds--and that's being exacerbated by state and municipal governments that have already cut their welfare programs to the bone--and poverty is at an all-time high, with well over 40,000,000 Americans now below the official government poverty line.
Now, we're reading and hearing of a growing consensus of respected economists telling us the same thing...it's almost September...and despite any optimistic news we might hear regarding positive fallout from short-term government stimuli, such as cash-for-clunkers and/or a brief, first-time-buyer housing credit, the reality is we're still on the edge of the abyss.
As Meteor Blades once wrote it, "Some people say the cup's half-empty. Others say the cup's half-full. Yet others tell us there's something wrong with the cup."