Tags: Roubini | Government | Gridlock | Recession

Nouriel Roubini: Government Gridlock ‘Ensures’ 2012 US Recession

Wednesday, 23 Nov 2011 04:01 PM

Political impasse after impasse will ensure the U.S. economy falls right back into recession in 2012, especially now that the congressional supercommittee failed to narrow deficits, says New York University economist Nouriel Roubini.

The government revised down third-quarter gross domestic product growth rates to 2 percent from 2.5 percent, and the downward spiral is set to continue, Roubini tells Yahoo's The Daily Ticker.

Fourth-quarter growth figures will be weak as well but on top of already sluggish economic activity, payroll tax cuts and extensions to unemployment benefits will expire in 2012.
___________________________________________________________

Economist Warns: 50% unemployment, 90% stock market drop, 100% inflation.
See the Evidence. Click Here to Watch the Aftershock Survival Summit Now.

___________________________________________________________

The failure of the supercommittee's plans to shave $1.2 trillion off the country's deficits puts the fate of those programs in doubt.

roubini200getty.jpg
Nouriel Roubini
(Getty Images photo)
If those programs are not extended, Roubini says, then they will result in a "fiscal drag," sapping about $350 billion out of the economy, as higher payroll taxes cutting into worker paychecks and less unemployment benefits helping out those out of work will crimp economic activity.

That $350 billion is the equivalent of 2.3 percent of GDP predicted for next year, which will wipe out any growth the economy is set to experience.

Even if officials do renew the programs, the fiscal drag doesn't completely go away but will fall to about 1.3 percent of growth, so the threat of recession is extremely high if not imminent.

"If the economy is growing only 1.5 percent to 2 percent and you get a fiscal drag of 1.3 percent — that's the difference between a growth recession and effectively zero growth," Roubini says.

The good news is the U.S. recession will be mild in comparison for what's in store for Europe.

Europe's crisis has been going on for about two years now and getting worse.

Policymakers are working on ways to prevent debt-ridden countries like Greece from defaulting, which could seriously disrupt the European financial sector similar to what the Lehman Brothers collapse did in the United States just over three years ago.

A meltdown in Europe, Roubini warns, would be "worse than the disorderly collapse of Lehman in the fall of 2008."

The International Monetary Fund, a multilateral lending institution, is set to provide liquidity into ailing European markets, but Roubini points out that "money alone is not going to resolve the problems" in Europe, adding contagion is spreading to markets in healthier nations like France.

"The contagion has now gone viral, cross Atlantic and global," he said.

"It's a slow-motion train wreck," Roubini adds.

Other experts agree with Roubini that the risk of a U.S. recession is rising.

Even though the supercommittee's failure to shave $1.2 trillion to spending was backed up by a provision to kick in automatic cuts of the same amount, the failure to tackle payroll taxes and unemployment benefits is worrying.

"The supercommittee's failure didn't stress the rating agencies, but if payroll tax cuts can't be extended — the risk of recession in 2012 goes up materially," Sebastian Galy, a senior currency strategist at Societe Generale, says in a research note, according to CNNMoney.

"And the 'better than expected' economic data we have been seeing becomes far less relevant, as we all peer through fog at the bleak outlook for 2012."

© 2017 Newsmax Finance. All rights reserved.

 
1Like our page
2Share
Headline
Political impasse after impasse will ensure the U.S. economy falls right back into recession in 2012, especially now that the congressional supercommittee failed to narrow deficits, says New York University economist Nouriel Roubini. The government revised down...
Roubini,Government,Gridlock,Recession
625
2011-01-23
Wednesday, 23 Nov 2011 04:01 PM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved