The Dow traded up over 1% today, and if you believe the prevailing interpretation (assigning motives to market moves is always a fraught business), the cause was Nouriel Roubini, this era’s Dr. Doom, saying the recession was over.
Roubini issued a statement that took issue with how the media (certainly Bloomberg) trumpeted his remarks. If you harbored any doubts that the news is being spun to stress the positive, this should put them to rest.
The key statement: “I am not forecasting economic growth before year’s end.”
Via e-mail (since there is no online source, am providing the full text):
The following is a statement from Dr. Nouriel Roubini, Chairman of RGE Monitor and Professor, New York University, Stern School of Business:
“It has been widely reported today that I have stated that the recession will be over “this year” and that I have “improved” my economic outlook. Despite those reports – however – my views expressed today are no different than the views I have expressed previously. If anything my views were taken out of context.
“I have said on numerous occasions that the recession would last roughly 24 months. Therefore, we are 19 months into that recession. If as I predicted the recession is over by year end, it will have lasted 24 months with a recovery only beginning in 2010. Simply put I am not forecasting economic growth before year’s end.
“Indeed, last year I argued that this will be a long and deep and protracted U-shaped recession that would last 24 months. Meanwhile, the consensus argued that this would be a short and shallow V-shaped 8 months long recession (like those in 1990-91 and 2001). That debate is over today as we are in the 19th month of a severe recession; so the V is out of the window and we are in a deep U-shaped recession. If that recession were to be over by year end – as I have consistently predicted – it would have lasted 24 months and thus been three times longer than the previous two and five times deeper – in terms of cumulative GDP contraction – than the previous two. So, there is nothing new in my remarks today about the recession being over at the end of this year.
“I have also consistently argued – including in my remarks today – that while the consensus predicts that the US economy will go back close to potential growth by next year, I see instead a shallow, below-par and below-trend recovery where growth will average about 1% in the next couple of years when potential is probably closer to 2.75%.
“I have also consistently argued that there is a risk of a double-dip W-shaped recession toward the end of 2010, as a tough policy dilemma will emerge next year: on one side, early exit from monetary and fiscal easing would tip the economy into a new recession as the recovery is anemic and deflationary pressures are dominant. On the other side, maintaining large budget deficits and continued monetization of such deficits would eventually increase long term interest rates (because of concerns about medium term fiscal sustainability and because of an increase in expected inflation) and thus would lead to a crowding out of private demand.
“While the recession will be over by the end of the year the recovery will be weak given the debt overhang in the household sector, the financial system and the corporate sector; and now there is also a massive re-leveraging of the public sector with unsustainable fiscal deficits and public debt accumulation.
“Also, as I fleshed out in detail in recent remarks the labor market is still very weak: I predict a peak unemployment rate of close to 11% in 2010. Such large unemployment rate will have negative effects on labor income and consumption growth; will postpone the bottoming out of the housing sector; will lead to larger defaults and losses on bank loans (residential and commercial mortgages, credit cards, auto loans, leveraged loans); will increase the size of the budget deficit (even before any additional stimulus is implemented); and will increase protectionist pressures.
“So, yes there is light at the end of the tunnel for the US and the global economy; but as I have consistently argued the recession will continue through the end of the year, and the recovery will be weak and at risk of a double dip, as the challenge of getting right the timing and size of the exit strategy for monetary and fiscal policy easing will be daunting.
“RGE Monitor will soon release our updated U.S. and Global Economic Outlook. A preview of the U.S. Outlook is available on our website: www.rgemonitor.com”
17 comments
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Yves: The online source is here.
It would be fantastic to expect the trough to be reached in 24 months.
The first round stimulus by the Chinese and other nations that spent fast peters out around then, so China is expected to tip back into recession.
US stimulus should peak in 1H 2010, to fade at the end of the year.
More than likely, that is going to cause yet another year or more of recession before there is significant growth.
Seems like this guy is starting to believe his own BS. Nostradamus?
anon @ 9:06 PM :
Seems to me the BS came from Bloomberg – who incidentally seem to be offline at least here in UK .
I agree that Roubini was misinterpreted but I think he has been getting a little too cute with his alphabet soup of economic scenarios. As D says, a sizeable chunk of Obama's stimulus is due next year. This was always expected to have some impact on the downturn. The question now with the fundamentals of the economy worsening more rapidly is whether there will be a technical end to the recession or just a slowing of our descent. Since the stimulus isn't large enough and Obama et al refuse to tackle the economy's underlying problems, it is a pretty safe bet that the economy will head south again as soon as the bolus of stimulus is done. There is nothing vast or deep about such a prediction. It seems mostly common sense.
The unemployment news is horrible!! The media pumps anything to counter the message. The FED along with the adminstration is all about managing expectations and they expect the media to come along for the ride.
Stimulus Hocus Pocus and Prognostications
The bulk of stimulus cash is headed to education and retraining, so that makes me wonder how the cash will trickle through our recession (stagflationary?) bound economy and get the wrecker train back on the high-speed rails.
Will college profs that are making close to $40,000 +/- see more students, who have more Federal loans +/- — money which will go to training for ….. jobs, jobs that will be needed …. in some place, some place where demand is increasing and the supply is limited or rare, like maybe training more people to become teachers?
> You did see it right fuc-ing here (<<–there<<) and the NEXT Bubble, is the teacher bubble, connected to the Education Bubble.
By God, America will have more teachers than any other nation on Earth, and we will as a nation stand by them and allow them to teach as many students as can be funded. This will not be like The George Bush Ownership Society, which resulted in The Housing Bubble, this will be a different bubble, a bubble that will grow from a tsunami of government credit targeted at helping America educate itself, so that we wont fall victim to stupid ideas like The Ownership Bubble, which was a bubble associated with a tsunami of cheap and easy credit for home purchases. No, by God, we will be better educated this time, as the wool is placed on our backs, versus over our heads.
As a nation, this next tsunami will be better, kinder, a gentler…
We got a thousand points of light
For the homeless man
We got a kinder, gentler,
Machine gun hand
We got department stores and toilet paper
Got styrofoam boxes for the ozone layer
Got a man of the people, says keep hope alive
Got fuel to burn, got roads to drive.
Keep on rockin' in the free world..
Neil Young & Pearl Jam!
http://www.youtube.com/watch?v=PTTsyk-pyd8
Also see and ponder;
OBAMA’S 2010 FEDERAL BUDGET EXPLAINED IN PLAIN ENGLISH
http://www.onlineforextrading.com/blog/federal-budget-broken-down/
Full Disclosure: Thank God the sun was out today! No spelling checker was used in the creation of theis text.
Doc Holliday,
Great rant! pretty much sums up my frustration, and I suppose many others as well.
Something tells me Neil Young would do something else with those "green shoots" besides believing in the refrain of "keep hope alive".
Doc Holliday,
Great rant! pretty much sums up my frustration, and I suppose many others as well.
Something tells me Neil Young would do something else with those "green shoots" besides believing in the refrain of "keep hope alive".
Doc, hasn't Chris Anderson been going around assuring us that the economy can grow forever in the future, and everyone get paid, as a ponzi scheme of teachers teaching others to become teachers?
Sounds rigorous to me.
The whole notion that "retraining" everybody (but within the framework of the status quo) is the road to the millennium is just a symptom of the Peter Principle at a societal level.
The problem isn't lack of skills. It's the obscene concentration of wealth, land, and power. Fix this and we fix everything else. Leave that the same, and nothing can be done at all.
Hugh, you said it so I don't have to. I struggle to see where growth is going to come from in our present problem set. No growth = no 'recovery.' And even then, any 'recovery' is likely to be technical only, having little or no engagement with the real economy.
We haven't bottomed in housing. Mortgage resets are going to suck whatever faint breeze of cash flow appears at the consumer level right back out of the economy. There is no view at all that hiring of any kind is improving, or even where it might improve. Cap utilization continues down now that the inventory bounce is behind us. Happy days are here again on Wall Street now that ev'erbody knows Uncle Feddy's been stuck with the bill, but that has nothing to do with the real economy.
The stimululs is not yet in view, and may arrive. Near year end. Meh. Too little; too much demand is going to leak offshore; most money is going to go into debt retirement, and hence right back to the money center banks where that money-in-motion will be disintegrated by their concealed black holes.
I think that it is reasonable to expect the downward slope of economic decline to level off over this winter. That does not imply even that such decline will end, only that it will slow. Myself, I'm dububious that anything which could be called a recovery is probable until the end of 2010 at the earliest, and that is if nothing else of note goes wrong, itself a questionable assumption.
Everyone wants this thing to be over. What is missing is _any material evidence to that effect_. Projections don't matter; it's evidence that matters. Got facts? I thought not.
Arrgh! Skippy was going back to school to_Lead_and now my dreams are shafted, dam you pro-cyclic mechanisms, also know as the Red Baron. OOH WELL, a PhD won't be worth much in the future any way, except in front of a firing squad.
Skippy…my kite dream is in a tree…Doc and Ricard Kline, stay away…you don't spot a football very well either.
anecdotal evidence
friend of mine -Columbia U. PhD in education -in great shape, healthy, kind and hard working -barely surviving with the low interest credit card borrowing over and teaching courses when he can get the work and tutoring in Microsoft programs: Excel, etc. …
Not everyone is entrepreneurial. I'm reminded of Bush's remark referring to layoffs and unemployment numbers that 'people are making money on eBay.'
my friend hasn't been able to find a job in years.
"as the challenge of getting right the timing and size of the exit strategy for monetary and fiscal policy easing will be daunting^H^H^H^H^H^H^H^H met with a failed effort."
Fixed it for him.
Oh wait, I forgot to mention something, which just happens to work fairly well, with this blogger-thing, where I can come back and add on to a previous thought about the stupidity of Stimulus money going into The Education Bubble (if Yves allows it).
I previously forgot to mention that the Madoff-like bait for the ponzi scam, will be the alluring scent and smell of fromage in the form of "green things" that in time will smell like rotten mold.
Yes, by God, don't put the Education bubble before The Green Cart, i.e, that all encompassing threat to make the World a better place (for you, for me : see this here moment and the as I'm sure that everyone has time, during this period of unemployment,go check out We Are The EWorld too : http://www.youtube.com/watch?v=NeJcePrcRDs ).
Sorry about that digression, but one has to plant mental images along-side visual images and music videos to be able to communicate these points, the point being (in this case) that Obama is selling us on the idea that we will be training people to work at jobs that don't exist — which is not a bad idea, because who will be able to blame The President, if the economy is unable to create jobs for people that are trained to work at jobs that are waiting for funding (which will be held up to train these people).
I hate to compare this Obama exploration to Bush's Ownership Society, but the goal for Bush, was to get as many people into houses as possible, and now that many of them are out of those houses, after the popping of that fraud bubble, it seems like we are going to create the next shell of ownership in the form of a degree or a sequences of classes that will be like a ponzi scam that draws people towards an economic solution that will once again result in debt and a a shell of a job that will look a lot like foreclosure, when a tsunami of students end up with nothing, just like the people that bought into no-doc loans.
Here we friggn go again!
Full Disclosure: No splell check was udes in the creation of this dumbass 2nd blogging…
What? Recession isn't over yet? That's impossible!…LOL
Vinny G.
If populations keep growing how can there be a recovery, really how can markets supply so called Jobs to everyone. Especially ones that within the present construct feed the cycle necessary to prop up this ponzi economy. We tried shipping moral hazard off shore, that worked for a bit, but has come back home to roost.
Are we just to clutch at systems of the olde days for romantic warmth, familiarity. For me at least we must move forward and redefine why we are here and how we spend our time whilst here, to what ends do toil and lives lived shape the world we live in and ready the next generation for their challenges moving forward.
All other endevors will just result in flailing and wailing of limbs and minds.
Skippy…presently scouting good location for viewing the big show, set to open soon, near you.