To Avoid a Double Dip, Ignore Nouriel Roubini (Dr. Doom's Subprime Prediction was just Luck)

Real Clear Markets ^ | 06/22/2010 | John Tamny

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Economist of the moment Nouriel Roubini continues to profit from the attention that has resulted from his alleged prediction of the 2008 financial crisis. The problem for Roubini is that if looked at objectively, the '08 crisis wasn't financial, and his prediction simple luck.

It was luck given the basic truth that no one, including Roubini, could have predicted the global government response that truly authored the crack-up. Contrary to his view that the moderation of housing was the crisis, the greater, historically accurate reality is that the global rush to housing driven by weakening currencies around the world was the recession. And when the markets started to correct classical Austrian malinvestment whereby limited capital flowed into the proverbial ground, the global economy began to heal; its rebound thwarted by government intervention.

But the crisis itself was the intervention. Far from financial, it was a government creation (something Roubini never forecasted) thanks to gargantuan mistakes being bailed out which disallowed the natural cleansing of the financial system. Short sellers were subsequently abolished, thus removing downside protection from the markets, and then worst of all, investors had to price in a future of muscular government involvement in the global economy despite the obvious fruits wrought by economic liberalization over the previous thirty years.

Roubini predicted none of this. Instead, he remarkably called for a stimulus package triple the size of the one President Obama foisted on the economy, and then later on told the Wall Street Journal that U.S. banks should be nationalized. Not only was Roubini's ill-gotten reputation made by the very government intrusion that he advocated, his post-crisis musings, if implemented, would have made a bad problem much worse.

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Unwilling to go gently into the night, Roubini continues to dine out on status that’s been falsely elevated by something he didn’t predict. Just last week he penned a widely read essay on how the global economy can avoid a double dip. Here’s hoping he’s ignored, unless of course we want further economic hardship.

Roubini’s general contention is that if governments “take away the monetary and fiscal stimulus too soon - when private demand remains shaky - there is a risk of falling back into recession and deflation.” Rarely has a mere portion of a sentence been so pregnant with falsehoods and misunderstandings