Tags: David | Rosenberg | US | Recession

David Rosenberg: 'Horrible Recovery' Pushing US Into Recession

Thursday, 23 June 2011 03:39 PM

Fiscal and monetary stimulus measures aren’t pumping up the economy enough to keep it from dipping back into recession, says David Rosenberg, chief economist at Gluskin Sheff.

Fiscal stimulus programs are over, and the Federal Reserve will end its second round of quantitative easing, a $600 billion bond buyback program, later this month.

After that, the economy won't be strong enough to stand on its own two feet without the help of the government.

"I think this economy is on a slippery slope organically without the ongoing benefits, if you want to call it that, of government intervention and expansion of the Federal Reserve balance sheet," Rosenberg tells CNBC.

"We have to be honest with ourselves, this has been an absolutely horrible recovery," he said.
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Rosenberg, who predicts a 99 percent chance of recession next year, said things are worse than the Fed acknowledges. He says when the recession comes, there will be a correction of 20 percent.

"Two years into this expansion, whenever the fiscal and monetary spigots are turned off, we go into what's called a ‘soft patch.’ This happened last year, and I feel like Bill Murray in the movie 'Groundhog Day.'"

Congress has done all it will in terms of fiscal stimulus, such as spending money developing infrastructure to fuel job creation.

The government has already blown through its $14.3 trillion debt ceiling and lawmakers are mulling raising it in order to avoid an Aug. 2 default, with many demanding spending cuts in return for raising the borrowing limit.

Fed Chair Ben Bernanke
(Getty Images photo)
Fed Chairman Ben Bernanke, meanwhile, has said further monetary easing is unlikely in that it may push up inflation rates out of the Fed's comfort range.

Quantitative easing did prevent the soft patch from morphing into something harder, Rosenberg says, but government stimulus programs only "buy us three or four months of better economic data, the stimulus fades and then, what do you know, we’re left with a soft patch again."

"I don't remember a cycle where in the first two years, you have two soft patches, That's completely abnormal," Rosenberg says.

Others agree that the road to global economic recovery is pocked with potholes, including Nouriel Roubini, the New York University economist who accurately predicted the severity of the financial crisis and recession of the last couple of years.

A "perfect storm" of fiscal woes in the U.S., a slowdown in China, European debt restructuring and stagnation in Japan may converge on the global economy, Roubini tells Bloomberg.

"There are already elements of fragility," Roubini says.

"Everybody’s kicking the can down the road of too much public and private debt. The can is becoming heavier and heavier, and bigger on debt, and all these problems may come to a head by 2013 at the latest."

But not all experts agree.
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Goldman Sachs Investment Strategist Abby Joseph Cohen says the U.S. economy has run into a soft patch thanks to transitory factors such as bad weather and the Japanese earthquake but will resume stronger growth as the year continues.

"It's clear that the U.S. economy is facing some transitory problems," Cohen tells CNBC. "The impact of higher energy prices, the effect of the supply chain disruptions in Japan and, of course, the bad weather throughout the United States, including tornado and flood damage."

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Fiscal and monetary stimulus measures aren t pumping up the economy enough to keep it from dipping back into recession, says David Rosenberg, chief economist at Gluskin Sheff. Fiscal stimulus programs are over, and the Federal Reserve will end its second round of...
Thursday, 23 June 2011 03:39 PM
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