Nouriel Roubini, the once obscure New York University economics professor, who two years ago predicted the current global financial crisis and recession, said the worst is still ahead for the U.S. economy and for economies around the world.
"In the next few months, the macroeconomic news and earnings reports from around the world will be much worse than expected," Roubini wrote in a column for Bloomberg News, adding that the aforementioned will put downward pressure on prices of risky assets.
Further, Roubini said the U.S. economy will remain in recession through at least the end of 2009, with only a mild recovery starting in 2010 -- with GDP growth in the initial recovery year of 1%. For 2009, Roubini also forecasts continued recessions for the United Kingdom, euro zone, Japan and Canada. Russia will also fall into recession, as will Brazil, and China will experience a hard landing, with growth slowing to 5%, he said. India's economy also will slow substantially.
Soothsayer or sensationalism?
But is Roubini exaggerating the likely depth and length of the recession or is he on the mark regarding U.S. and global economic conditions? BloggingStocks asked two economists, David H. Wang and Peter Dawson, to evaluate Dr. Doom's latest analysis.
Wang said Roubini's analysis has been more-accurate than most economists' he's surveyed. "Roubini's projections about China's economy have been more accurate than my own, and I follow China's economy closely," Wang said. "I did not project nor see the degree to which a slowdown in U.S. imports would slow China's economy."
Dawson said Roubini saw, from a theoretical standpoint, the danger that reckless and destructive leverage posed for the financial system and the global economy before others did.
"A majority of the analysis a year ago was talking about the problem of excess leverage in housing, but Roubini was talking about the abuse of leverage in housing [mortgages], hedge funds [trading], commodities [trading], and private equity [deals driven by fees and the availability of money, not operational metrics] years before anyone else was. The bursting of the housing bubble triggered the financial crisis, but it's been excesses of leverage and debt system-wide that has led to the conditions we face today. So Roubini has been on the mark."
Grading the predictor
On a prediction accuracy scale of 1 to 10 (1 being least, 10 being most or metaphysical certitude), Wang gives Roubini an 8.5; Dawson gives Roubini a 9.
And like Roubini, Wang and Dawson also favor a large U.S. fiscal stimulus package, upwards of $850 billion, along with much more quantitative easing by the Fed, to jump-start demand and get the U.S. economy moving again.
Economic Analysis: Here's hoping Roubini, Wang and Dawson are all wrong. San Francisco Federal Reserve Bank President Janet Yellen doesn't think so: she said this will not be a garden-variety recession. Bottom line: Get the fiscal stimulus package passed and signed into law ASAP, after the inauguration of the new president.