Roubini: US Rebound a 'Fairy Tale,' Stocks to Fall

moneynews.com ^ | 7/20/2012 | Forrest Jones

[Signalman]

U.S. stocks have risen in recent years but mainly due to the Federal Reserve's moves to stimulate the economy.

The Fed may move again to prop up the country and stave off recession, but results will be weak and stock prices will plummet when the monetary sugar rush ends, said New York University economist Nouriel Roubini.

Previous calls for U.S. gross domestic product growth of around 3 percent this year have been off, with forecasts being slashed.

"The first-half growth rate looks set to come in closer to 1.5 percent at best, even below 2011’s dismal 1.7 percent," Roubini wrote in a Project Syndicate column.

"And now, after getting the first half of 2012 wrong, many are repeating the fairy tale that a combination of lower oil prices, rising auto sales, recovering house prices, and a resurgence of U.S. manufacturing will boost growth in the second half of the year and fuel above-potential growth by 2013." Roubini wrote.

Despite improving manufacturing industries and a housing sector that appears to be bottoming out, a sharp fiscal retrenchment will strike the country at the end of this year.

At the close of 2012, tax breaks, including the Bush-era tax cuts, will expire, while automatics cuts to government spending will kick in, a combination dubbed as a "fiscal cliff" that will siphon $500 billion out of the economy next year alone and possibly spark a recession if Congress doesn't act.

Further, Federal Reserve stimulus measures such as buying bonds from banks to prop up the economy and stock prices — known as quantitative easing — are temporary measures that carry diminishing returns, meaning further action won't help much.

[The Sons of Liberty]

When the truth is finally written, it will be shown that we NEVER came out of recession, and 0bama and his commie buddies have actually pushed us into DEPRESSION! (but to say so is racist and politically incorrect)

[deadrock]

Well, this is certainly unexpected news!

[RBStealth]

It used to be the age of the perma bull —give or take. Now the age of the perma bear.

[rbg81]

Unexpectedly unexpected. Maybe even racist and homophobic.

[GraceG]

If there was an internet in the 1930’s FDR would have been a one term president.

[rdcbn]

Because so much of the Stimulus money went to graft and corruption or was outright stolen by Obama cronies and most of what was not stolen was wasted on non productive project, it's really hard to determine if the concept of the stimulus would have really helped the country or had the same destructive effect it ended up having.

Regardless, going even further off the cliff with more stimulus, especially in the form of pure printing of money, would be a disaster that could push us off the edge of fiscal cliff.

[Gaffer]

U.S. stocks have risen in recent years but mainly due to the Federal Reserve's moves to stimulate the economy.

You mean the Federal Reserve's copious printing of worthless paper money so vastly and so quickly that they can't even get the imprints on the paper on much of their scrip correctly? [Take ten twenties - look at them closely, two or three of them will have the face side unevenly imprinted - why is that?] You mean the US Treasury that now sells T-bills DIRECTLY China without bidding on Federal Reserve Auctions that have become almost a weekly event? Why isn't is all crashing? We're printing money like it's toilet paper - why not devaluation? Well, my guess is that China is in it for the long game and is biding their time - not redeeming. This allows Obama to print it up, spend it and claim 'stimulation'...regardless of whether he's stimulating the economy (actually his UNION cronies and capitalist bundlers with huge contracts)...China not choosing to redeem its holdings is holding up the Obama lie. I believe that China, "at a time and place of their choosing" could bring it down in a heartbeat....[remember those words? Yes, W said them - but in a different context, one we all endeared.] I wouldn't own a stock now unless I was short of toilet paper.

[Nervous Tick]

Roubini’s got a great track record on these things. He has correctly predicted at least eleven of the last three downturns. ;-)

[central_va]

$5Trillion dollars, adjusted for inflation, is the equivalent of what the US spent on WWII. How do you piss away a WWII in 4 years.

[central_va]

$5Trillion dollars, adjusted for inflation, is the equivalent of what the US spent on WWII. How do you piss away a WWII in 4 years.

[uncommonsense]

I would love to see a factual economic accounting - with the felonious fraud factored out of the revenue and asset sides of their respective financial statements - Fed's and Fannie/Freddie/Sallie et al toxic assets, $110 trillion unfunded SS/Medicare/Medicaid liabilities, federal pension insurance liabilities, state liabilities, artificially low unsustainable interest rates, unreported inflation, $360 trillion in mispriced financial instruments based on LIBOR, and all of the rest of the BS.

There would be a billion simultaneous hear attacks when the world finds out we're flat broke - there is no more “other people's money” left anywhere.

[uncommonsense]

Actually the “hear” attack would cause a “heart” attack ;-_

[spokeshave]

Despite improving manufacturing industries and a housing sector that appears to be bottoming out,

Good luck with that....

BofA has over a million mortgages on the books that are at least 2 months behind in payments.

What we have here is a dead cat bounce on wet cement.