by Peter Switzer
But he missed seeing or believing in the recovery, continuing to scare the pants off people like me who were prepared to back the more optimistic “we will muddle through” scenario. After being right on the worst slump since the Great Depression, I’ve argued that he was wrong on the economic comeback, but with today’s ‘apparent’ call, I reckon he’s getting it right, at last! Or is he?
The Dow shot up 100 points when the news hit the market that the big bear had publicly revealed he thought the worst of the financial and economic crisis was over.
Like our own local bear — Steve Keen, who writes for switzer.com.au — Roubini is a university professor. Roubini teaches at NYU and is chairman of RGE Global Monitor. (Keen is an associate professor at University of Western Sydney.)
But the similarities don’t end there. Both predicted that a financial day of reckoning would happen and that a serious recession would result. Both were more inclined to bring out the D-word as they had a much gloomier view on the adjustment process from recession to recovery because of the depth of financial problems first, and then the economic flow on effects.
Keen, who is a very intelligent guy, and with whom I taught with at the University of New South Wales, has not recanted his negative view and told me this week on my Sky Business program — SWITZER — he thinks unemployment in Australia will go to 10 per cent!
I don’t agree and most economists are now in the around 8 per cent camp for the future jobless rate, but the Aussie bear isn’t for changing.
Now back to Roubini: Reuters reported Doctor Doom had said that the economy would emerge from the recession towards the end of 2009, though he did say a second $250 billion fiscal stimulus package might be needed to stem the rise of unemployment.
Not long ago, Roubini was tipping a big market correction and even oil at US$100 a barrel and a double dip recession. He seems to be less gloomy, or should I say doomy. Or is he?
News flash — Doctor Doom has claimed he was misquoted and/or taken out of context! The bears can breathe a sigh of relief.
This is what he said: “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.”
He thinks the recession ends at the end of the year. He sees weak growth next year and the chance of a double-dip recession.
“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,” Roubini said today. “Now there is also a massive re-leveraging of the public sector with unsustainable fiscal deficits and public debt accumulation.”
He thinks unemployment will go to 11 per cent next year, however he is a little less doomy.
“So, yes there is light at the end of the tunnel for the US and the global economy,” he conceded. “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.”
Let’s get this straight, this guy is really smart and his day-by-day call of the economic and financial collapse in early October last year was very accurate.
And in a CNN article in 2008 it showed that Roubini was measured, at times. He tipped a "very painful and severe recession" that could last for 18 months or more, but it will be more like 1981 than 1929. That was a smart call, however, he has been associated with headlines such as: “Roubini Warns of Possible Systemic Meltdown" and "Severe Global Depression".
The D-word should not be used willy nilly — economists and commentators should never underestimate their impact and so they better be right when they make the big call.
Doctor Doom got a lot right but he will get some things wrong and the severity of the economic adjustment process and the pace of the recovery, I suspect and I hope, will be two of them.
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Published on: Friday, July 17, 2009blog comments powered by Disqus