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2.7%  Q1 GDP    4.57%  avg. 30-year mortgage     9.5%  Unemployment

Dr. Doom Is Back! Roubini Makes Case for 'Double Dip' Recession

Thanks to his perma-bear status, NYU business professor Nouriel Roubini is known by some as Dr. Doom. He accurately forecast the current crisis and is like a dog with a bone, refusing to let it go.

In this column in today's Financial Times, Roubini makes a compelling case for a U-shaped recession and just for fun, at the end, tosses in a couple of arguments for a double-dip recession, meaning this stabilization and stock market rally we've enjoyed since March will soon peak and the economy and the markets will head back down to another low before recovering. This is called a W-shaped recovery.

To be fair, Roubini gets beat up too often and easily by the pie-eyed bulls, some of whom seem to expect a continuation of the 50-percent stock rally we've seen since the early-March bottom.

He doesn't help his cause by his relentless bearishness, but his points today bear looking at, so to speak.

Arguing for his U-shaped recovery -- a steep dive, a bump along the bottom for a while, then growth -- Roubini notes:

-- Unemployment continues to rise. This is the most compelling argument. U.S. unemployment dipped from 9.5 percent in June to 9.4 percent in July, but that's a shadow figure. The only reason it fell was because so many people have checked out of the workforce, shrinking the labor pool.

Most economists and the White House expect it to crest above 10 percent. With continued high unemployment -- and don't think that the minute it hits 10 percent, it will start back down again; you should expect it to "bump along the top" for several months -- comes more foreclosures, more credit card defaults and all the collateral damage that comes along with it, which drives down corporate earnings, which can sink the economy back into a second dip.

-- The true losses at the big financial institutions have not yet come. Instead, Roubini argues, they have been "socialised" (the FT is a Brit publication). Once they're taken off the government's balance sheet, the real deleveraging will begin.

His two arguments for a double-dip recession are:

-- If policy makers try to contain the massive deficits and debt run by by recovery attempts by raising taxes, they could spur stagflation.

-- Oil, energy and food prices are rising faster than they should, Roubini argues, though this stands a bit at odds with recent PPI and CPI numbers. Nevertheless, if he's right and oil shoots near $100 per barrel again, that shock could drive a weakened economy right back down.

FOT (Friend of the Ticker) Erin Burnett over at CNBC is pushing what she calls a "humpy L-shaped" recovery. This, she explains, is the sharp drop we saw at the end of 2008 and beginning of 2009 followed by a slight hump up -- which we've seen since March -- caused by the government stimulus and monetary policy. After that, a shallow upward line. Growth, but anemic growth.

We were pushing a recovery that looked something like the Verizon logo (no hump, just L), but that sort of got blown out by the big stock rally since March. So we're out of the game of putting shapes on recoveries.

-- Frank Ahrens

By Frank Ahrens  |  August 24, 2009; 12:00 PM ET
Categories:  The Ticker  | Tags: Erin Burnett, Nouriel Roubini, recession  
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I see it as an OWL shaped recovery
"Cut out owl shapes to look like the owl is sitting on a branch (a horizontal "thin" rectangular piece sticking out on either side of the owl at the bottom. Use brown construction paper to make the owl cut-outs. Then, have the children glue on two cheerios for the eyes and a yellow construction paper triangle (pre-cut by teacher or have children cut their own. Next, have the children spread glue on the breast of the owl and the wings...and then cover the breast with oatmeal and the wings with pieces broken off a pine cone. The owl will have a very textured look! On the branch part...have the children glue on pretzel sticks."

Stick with your glue business, cover the breast with oatmeal and recycle pine cones. After all the kids need their fun too and what's a recovery with no craftiness? A bore or worse. People make things too difficult. Maybe it's a pretzel shaped recovery. We need more breweries. Sometimes it's a hard lay and sometimes it's an EZ lay.
Stay back inn black Post.

Posted by: Dermitt | August 24, 2009 1:36 PM | Report abuse

Clean up WALL STREET, then recovery can begin but will still take a decade.

There is a culture of omnipotence that has been very pervasive throughout all of Wall Street’s major firms during the past two decades. It has also been very destructive.

America needs to clean house before a serious recovery can begin, and confidence reinstated.

Posted by: JamesRaider | August 24, 2009 5:13 PM | Report abuse

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