A "perfect storm" of events will collide in 2013 and throw the world back to economic crisis, warns New York University economist Nouriel Roubini.
Roubini, who accurately predicted the timing and severity of the recent recession, says investors have made overly optimistic U.S. growth expectations for the second half of the year and could get burned.
The economy will grow but at a sluggish pace, and those who haven't priced that assumption into their investment models are going to pay.
Editor's Note: 3,981 People Received Millionaire Status Yesterday.
Today is Your Turn.
Don’t listen to ANYONE who says you’ll never have a genuine chance at achieving life-changing prosperity. Get Your New Millionaire Success Kit 100% FREE. Click Here.
"I think that the markets are expecting now robust recovery in the second half of the year. I think the recovery is going to disappoint on the downside," Roubini tells CNBC.
"The second half is going to be slightly better than the first half only because the first half was awful."
Furthermore, corporations will no longer be able to pass the rising costs of inputs onto recession-weary consumers, which could hurt corporate earnings, arguably the only true winner in today's lukewarm recovery.
(Getty Images photo)
Roubini says a "perfect storm" of events will collide in 2013 and throw the world back to economic crisis.
The U.S. and Europe haven't dealt with debt problems, which will come to a blow in two years, while red-hot China will cool as well, possibly making a hard landing that will send shockwaves across the globe.
"Every economy in the world trying to push their problems into the future," Roubini says.
"We are kicking the can down the road and all of this is going to come to a head in 2013."
Focusing on the U.S. economy, politicians are going about tackling widening deficits in the wrong manner by focusing too much on cutting spending.
"I'm in favor of fiscal austerity but you have to not front load it. You have to commit to a medium-term plan. You have to cut spending and raise taxes," Roubini says.
Spending cuts at the state and federal levels are going to drag on the economy as will the absence of stimulus measures and expansive monetary policies.
"The optimists say we are going to have 3.4 percent to 4 percent growth in the second half of the year. We have not had this growth rate even in the recovery so I can see growth being slightly above 2 percent, or at an average of 2.4 percent, but that means that growth is still below potential," Roubini says.
"Unemployment remains high, housing is double dipping and you have the fiscal drag at the state and local governments and at the federal level, the stimulus is going away and QE2 is going away."
He was referring to QE2, the abbreviation for quantitative easing, a $600 billion Federal Reserve bond buyback program designed to fuel economic growth by injecting money into banks that met with skepticism from many market watchers.
Some, however, say market optimism is justified.
Rising energy and fuel prices, which cut into economic activity during the first half of the year, have stabilized.
Plus the fallout from the Japanese earthquake in the U.S. economy is starting to settle, says Mark Zandi, chief economist at Moody's Analytics, according to Yahoo’s Ticker.
"We've seen the bulk of the slowdown…. I think we're going to reaccelerate," Zandi.
"The consensus is overly pessimistic."
Still, job growth will remain lukewarm, Zandi says, predicting payrolls gaining only about 100,000 workers in the next month or two.
They rose by 54,000 in May, when unemployment rose to 9.1 percent from April's 9.0 percent.
© 2017 Newsmax Finance. All rights reserved.