Dr. Doom Has Some Good News

[ProSense]

The U.S. recession will last six more months and be followed by a “shallow” recovery, Nouriel Roubini said.

Nouriel Roubini, the New York University economist who accurately forecast the bursting of the housing bubble and the resulting economic contraction, has become famous for his pessimism—he has been the gloomiest of the doomsayers. Which is what makes his current outlook surprising: Roubini believes that the Obama administration’s policy makers—and especially the much-maligned Tim Geithner—have gotten a lot right. Pitfalls may still abound, but he is now projecting an end to the recession, and he sees growth ahead.
by James Fallows

Dr. Doom Has Some Good News

On March 28, 2007, Federal Reserve Chairman Ben Bernanke appeared before the congressional Joint Economic Committee to discuss trends in the U.S. economy. Everyone was concerned about the “substantial correction in the housing market,” he noted in his prepared remarks. Fortunately, “the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained.” Better still, “the weakness in housing and in some parts of manufacturing does not appear to have spilled over to any significant extent to other sectors of the economy.” On that day, the Dow Jones industrial average was above 12,000, the S&P 500 was above 1,400, and the U.S. unemployment rate was 4.4 percent.

<...>

With the celebrated exception of Nouriel Roubini, an economist from the Stern School of Business of New York University. At just the time Bernanke was testifying about the “contained” real-estate problem, Roubini was publishing a paper arguing that the depressed housing market was nowhere near its bottom, that its contraction would be the worst in many decades, and that its effects would likely hurt every part of the economy. In September 2006, with markets everywhere still on the rise, he told a seminar at the International Monetary Fund’s headquarters that the U.S. consumer was just about to “burn out,” and that this would mean a U.S. recession followed by a global “hard landing.” An economist who delivered a response dismissed this as “forecasting by analogy.” The IMF’s in-house newsletter covered Roubini’s talk as a curiosity, under the headline “Meet Dr. Doom.”

Roubini is thus enjoying his moment as the Man Who Was Right, a position no one occupies forever but which he is entitled to for now. As markets have collapsed, the demand for his views and predictions has soared. He travels constantly, and late this spring I met him in Hong Kong to ask what he was worried about next.

<...>

The conversation was surprising in three ways: for the relatively high grades Roubini gave Treasury Secretary Timothy Geithner, generally the least-praised member of the Obama economic team; for the overall support (with one significant exception) he expressed for the administration’s response to the economic crisis; and for his willingness to look far enough beyond today’s disaster to speculate about the problems a recovery might bring. He was also full of advice about China’s reaction to the world financial crisis, including the suggestion that its options are narrower than its leaders may grasp.

Roubini’s compliments for Geithner were in the context of the intellectual and policy history of how the crash had developed and why its effects have been so severe. The dot-com and larger tech-industry crash of 2000 eliminated a tremendous amount of stock-market wealth. During the panicky sell-off of 1987, nearly a quarter of the New York Stock Exchange’s total value was lost in one day. By comparison, defaults on subprime mortgages would seem more limited in their capacity to harm the economy. Why, then, had so much gone so deeply wrong?

<...>

Was there any alternative? Yes, if central bankers had taken a “more symmetric approach” to bubbles, trying to control them as they emerged and not just coping with the consequences after they burst. Geithner, he says, was one of those who saw the danger: “While Ben Bernanke was talking about a ‘global savings glut’ as the source of imbalances, Geithner was talking about America’s excesses and deficits. Like the Bank of England and the Bank for International Settlements, he was warning at the New York Fed that we had to be more nuanced in the approach of how you deal with asset bubbles.”

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[BlooInBloo]

1. lol! I thought you meant....

[Blue_Tires]

8. i really do need to have my name legally changed to Victor von Doom, Ph.D

i keep putting that off....

[TokenQueer]

10. Who could blame you?

The lines at the DMV are ridiculous.

[bluestateguy]

2. Some of the posters on DU make Roubini look like a polyanna

nt

[alcibiades_mystery]

3. Are you saying I should stop working on the Road-Warrior-Mobile?

Because I have foxtails hangin' from the aerial, and it's revved up and ready to kick ass for fuel. DUers told me so!

[Peacetrain]

4. If Dr. Doom is seeing it..

Well hello and have a cup of coffee...

[Kaleko]

5. Roubini

is one of the few people whose forecasts I take seriously. Thanks for posting this.

[DrToast]

6. It won't be six months

The recession will end this quarter. There's even a chance it ended in June.

The sluggish recovery part, however, is spot on.

[Peacetrain]

7. I think sluggish also..

[flyarm]

9. The jobs situation is even worse than the headlines." Nouriel Roubini

The jobs situation is even worse than the headlines." Nouriel Roubini

http://www.forbes.com/2009/07/08/jobs-report-mortgages-...

Brown Manure, Not Green Shoots
Nouriel Roubini, 07.09.09, 12:00 AM EDT

The jobs situation is even worse than the headlines.
snip:

The employment report shows that conditions in the labor market continue to be extremely weak, with job losses in June of over 460,000. With the current rate of job losses, it is very clear that the unemployment rate could reach 10% by later this summer--around August or September--and will be closer to 10.5%, if not 11%, by year-end. I expect the unemployment rate is going to peak at around 11% at some point in 2010, well above historical standards for even severe recessions.
It's clear that even if the recession were to be over anytime soon--and it's not going to be over before the end of the year--job losses are going to continue for at least another year and a half. Historically, during the last two recessions, job losses continued for at least a year and a half after the recession was over. During the 2001 recession, the recession was over in November 2001, and job losses continued through August 2003 for a cumulative loss of jobs of over 5 million; this time we are already seeing more than 6 million job losses and the recession is not over.


The details of the unemployment report are even worse than the headline. Not only are there large job losses right now, but as a way of sharing the pain, firms are inducing workers to reduce hours and hourly wages. Therefore, when we're looking at the effect of the labor market on labor income, we should consider that the total value of labor income is the product of jobs, hours and average hourly wages--and that all three elements are falling right now. So the effect on labor income is much more significant than job losses alone.

The details also suggest that other aspects of the labor markets are worsening. If you include discouraged workers and partially employed workers, the unemployment rate is already above 16%. If you consider also that temporary jobs are falling now quite sharply, labor market conditions are becoming worse and the average duration of unemployment now is at an all-time high. So people not only are losing jobs, but they're finding it harder to find new jobs. So every element of the labor market is worsening.