Posted on 08/25/2006 12:45:28 PM PDT by Toddsterpatriot
WASHINGTON (MarketWatch) -- The United States is headed for a recession that will be "much nastier, deeper and more protracted" than the 2001 recession, says Nouriel Roubini, president of Roubini Global Economics.
Writing on his blog Wednesday, Roubini repeated his call that the U.S. would be in recession in 2007, arguing that the collapse of housing would bring down the rest of the economy.
Roubini wrote after the National Association of Realtors reported Wednesday that sales of existing homes fell 4.1% in July, while inventories soared to a 13-year high and prices flattened out on a year-over-year basis.
'This is the biggest housing slump in the last four or five decades: every housing indicator is in free fall, including now housing prices.'
The decline in investment in the housing sector will exceed the drop in investment when the Nasdaq collapsed in 2000 and 2001, he said.
And the impact of the bursting of the bubble will affect every household in America, not just the few people who owned significant shares in technology companies during the dot-com boom, he said. Prices are falling even in the Midwest, which never experienced a bubble, "a scary signal" of how much pain the drop in household wealth could cause.
Roubini is a professor of economics at New York University and was a senior economist in the White House and the Treasury Department in the late 1990s. His firm focuses largely on global macroeconomics.
While many economists share Roubini's concerns about imbalances in the global economy and in the U.S. housing sector, he stands nearly alone in predicting a recession next year.
Fed watcher Tim Duy called Roubini the "the current archetypical Eeyore," responding to a comment Dallas Fed President Richard Fisher made last week in referring to economic pessimists as "Eeyores," after Winnie the Pooh's grumpy friend.
"By itself this slump is enough to trigger a U.S. recession: its effects on real residential investment, wealth and consumption, and employment will be more severe than the tech bust that triggered the 2001 recession," Roubini said.
Housing has accounted, directly and indirectly, for about 30% of employment growth during this expansion, including employment in retail and in manufacturing producing consumer goods, he said.
In the past year, consumers spent about $200 billion of the money they pulled out of their home equity, he estimated. Already, sales of consumer durables such as cars and furniture have weakened.
"As the housing sector slumps, the job and income and wage losses in housing will percolate throughout the economy," Roubini said.
Consumers also face high energy prices, higher interest rates, stagnant wages, negative savings and high debt levels, he noted.
"This is the tipping point for the U.S. consumer and the effects will be ugly," he said. "Expect the great recession of 2007 to be much nastier, deeper and more protracted than the 2001 recession."
He also sees many of the same warning signs in other economies, including some in Europe.
Rex Nutting is Washington bureau chief of MarketWatch.
Bush is doing so badly, he's lost 1/9 of the Solar System!
Badda-boom.
"Roubini is a professor of economics at New York University and was a senior economist in the White House and the Treasury Department in the late 1990s. His firm focuses largely on global macroeconomics. "
Yup. Clintonista.
Forgive me, but it seems most of these so-called economics gurus can predict economic trends about as well as local meterologists can predict what this coming winter will be like in western PA.
Well, that's not really all that hard.
My question is: did he use Keynsian economic theory to come up with this? If he did, we can ignore his comments pretty completely...as pretty near everything since the early 80s has been impossible under that model.
Someone should put Cherthoff's face on Chicken Little.
Neat pic.
Trying to "talk down" the economy in time for the next presidential election.
Think we can guess his political party?
I saw nasty and deep in a movie that was from the back section of the video rental store... LOL
Politicians aside, he is not alone in his beliefs in a 2007 recession. Listened to Peter Schiff of Euro Pacific capital on bloomberg yesterday, very compelling in his argument for a 2007 recession. Housing collapse will be tipping point.
Bring it on!I like lower interest rates.
Pluto is no longer a planet? Definitely Bush's fault.
"Forgive me, but it seems most of these so-called economics gurus can predict economic trends about as well as local meterologists can predict what this coming winter will be like in western PA."
...and with about the same accuracy as the Northern and Southern groundhogs, Punxatawney Phil and General Beauregard Lee.
"...and with about the same accuracy as the Northern and Southern groundhogs, Punxatawney Phil and General Beauregard Lee. "
***
The groundhogs are more accurate.
They could probably predict economic trends a lot better too.
Interest rates fell this week for the FIFTH week in a row.
Potential for Crisis Remains
This (Fed) tightening cycle may have already ended without a crisis. Nonetheless, the potential for a crisis remains (housing and autos are two candidates). We'll be watching to see if weakness in those areas impacts other areas (e.g. banks or spreads). By definition, a problem becomes a crisis when it starts to impact other areas (i.e. contagion).
Following is a list of the 9 Fed tightening cycles of the last 35 years, and the associated financial crisis.
1970 Penn Central Railroad bankruptcy
1974 Franklin National bankruptcy
1980 First Penn / Latin American loans
1984 Oil Patch / Continental Illinois bankruptcy
1987 Black Monday stock market - 1 day 22% decline
1990 S&L crisis / Bank of New England (Federal Bailout)
1994 Mexican Loan defaults (Federal Loan guarantees)
1997 Pacific Rim / Russia defaults -> Long Term Capital
2000 Stock Market bubble collapse
2006 ?
Guess I better start training the dog to haul the teepee across the Great Plains. We won't have wheels when this new great depression hits, right?
Housing has accounted, directly and indirectly, for about 30% of employment growth during this expansion, including employment in retail and in manufacturing producing consumer goods, he said.
And
another 25%(?) of "employment" growth has been from expansion of FEDERAL "jobs"
I don't remember a tightening cycle in 1997. In January 1996, the Fed Funds target rate was 5.25%. In March 1997, it rose to 5.5%. It dropped back to 5.25% in September 1998.
I don't remember a tightening cycle in 1987 either.
Of course .... pay no attention to those guys that actually DO things .. like say Bill Gates, that CEO of Exxon or any other billionaires around the US.
Nouriel Roubini is former member of Clinton's Council of Economic Advisors.
I rest my case.
Housing slump? Maybe he is right, but someone needs to tell all the people who are still building those huge mansions just as quick they can tear down the little old cottages.
When I drive around Houston I feel like I am in a different city every month or so. The old landmarks are gone and something new is going up.
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