You thought New York University Professor Nouriel Roubini was simply another one of those 'liberal academics' who criticize only Republicans like former U.S. President George W. Bush, or was merely trying to attract media coverage?

Not quite. Roubini's forecast has not changed since President Obama's election and inauguration, and his once-extreme forecasts have proved to be more accurate than estimates by most economists.

China to weigh on stocks

Roubini, the once obscure New York University economics professor who two years ago predicted the current global financial crisis and recession, now believes stock markets around the world will fall 20% from current levels, due to China's recession, Bloomberg News reported Friday.

Further, Roubini believes China is already in a recession despite its most recent GDP report, which showed 6.8% growth in Q4 2008 and a 9% growth rate for 2008.

"Demand is falling in China, they're over-invested in capacity and there's a global supply glut," Roubini told Bloomberg News. "It has very, very important implications."

Those investors, including market absolutists, who interpret the current economic state-of-things as just a typical downturn that a few tax cuts and some good, old-fashioned, free market-based supply side economics can solve, may want to stop reading the economic data points in the months ahead. At least, that's the view of one economist.

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.

Nouriel Roubini, the once obscure New York University economics professor who two years ago predicted the current global financial crisis and recession, said those who are turning bullish on the U.S. stock market need to reassess the data.

Roubini told Bloomberg News he was "still quite bearish on U.S. and global equities." Despite losing much of their value already, Roubini thinks they could still lose another 15-20% before any recovery beginning towards the end of 2009.

Caveat emptor: let the (stock) buyer beware

The S&P 500 has fallen more than 40% in 2008, and with a forward P/E of about 12, one could make the case that stocks are at least approaching cheap levels, based on the post-World War II P/E average of about 17. Economist Richard Felson is not of that camp.

"Cheap compared to what? Compared to bull market high P/Es of 25 or 26, yes, but that assumes a) a return to GDP growth levels experienced before the recession hit; and b) that stocks won't drop to lower levels. You can't assume either, so Roubini's downside forecast may represent 'discretion being the better part of valor'," Felson said. "This is a risky time to own stocks or increase positions. Stocks could become much cheaper, particularly if the recession lasts into Q3 2009."

Nouriel Roubini, the once obscure New York University economics professor who two years ago predicted the current global financial crisis and recession, said a bankruptcy filing by two of the Big Three automakers would deepen and lengthen the U.S. recession.

Roubini said if General Motors or Chrysler are forced into bankruptcy without a U.S. government rescue, the U.S. recession will extend well into 2010, Bloomberg News reported

"The economic ramifications of an outright bankruptcy would be severe," Roubini told Bloomberg News, adding that the already-weak U.S. fundamentals mean that a recovery of growth will not occur until 2010.

General Motor's (NYSE: GM) shares rose 15 cents to $3.81 on Monday at mid-day; Chrysler is privately held. Ford's (NYSE: F) shares rose 13 cents to $3.17.

Economist David H. Wang agreed with Roubini's assessment. "A GM bankruptcy would create a ripple-effect. The steel, aluminum, textile, auto parts supplier, and support sectors would be immediately impacted, resulting in large lay-offs within weeks. The credit market also would be effected, and obviously the stock market would not have a pleasant time," Wang said. "Chrysler would fold, Ford would also be hurt on a deterioration of sector confidence, and the industrial sector would experience its biggest decline in generations."

Nouriel Roubini, the once obscure New York University economics professor who two years ago predicted the current global financial crisis, now says the United States will likely face its worst recession in 50 years.

"I expect the worst recession in 50 years," Roubini told Bloomberg News. "There will be a cumulative fall of output of 4% from the peak, and unemployment will jump to 9%."

Further, predicting that future U.S. Federal Reserve interest cuts will be ineffective, Roubini also reiterated that the U.S. economy needs "a major, aggressive fiscal stimulus, a $300-400 billion package, because private demand is collapsing."

Roubini's forecasts were once considered to be 'too harsh' or 'implausible,' due to what many economists and analysts argued were premises that were incorrect or off-the-mark. These conclusions earned Roubini the nickname 'Dr. Doom.' However, in less than two years, and especially in 2008, U.S. financial and economic fundamentals have deteriorated to such an extent, that at least in some metrics, conditions are closer to Roubini's forecasts than those of the many, mainstream economists who had scoffed at his predictions.

Nouriel Roubini, the once obscure New York University economics professor who two years ago predicted the current global financial crisis, now says the world's largest economy will need a large fiscal stimulus from the federal government to avoid a serious economic downturn.

Further, failure by Congress to pass a large fiscal stimulus, as well as undertake other measures, will lead to a 18 to 24 month recession, which will push unemployment above 9%, Roubini said on his website, the RGE Monitor.

Sees need for large fiscal stimulus

"Much more needs to be done including further monetary policy easing, a large fiscal stimulus program to boost demand at the time when private aggregate demand (consumption and investment) are sharply falling; and a plan to reduce the mortgage debt burden of millions of distressed households," Roubini said.

Further, Roubini said the U.S. government will have to double its purchase of bank stakes and require these banks to eliminate dividends to save them from bankruptcy. He also now sees bank/financial institution credit losses stemming from the collapse of the subprime mortgage market of about $3 trillion, up from his earlier estimate of $1-2 trillion.

The above statistics paint a sobering prospect/picture of economic contraction, but Roubini does see a ray of light:

Nouriel Roubini, the once obscure New York University economics professor who two years ago predicted the current global financial crisis, now says leaders of the world's major industrialized economies and developing countries must implement an 'all fronts' approach to avert a financial calamity and a global depression.

"It will take a significant change in leadership of economic policy and very radical, coordinated policy actions among all advanced and emerging-market economies to avoid this economic and financial disaster," Roubini said on his web site, RGE Monitor.

Roubini urged that national policy makers take immediate action to end the crisis, which has dramatically tightened credit conditions worldwide, constraining the ability of corporations to undertake daily operations, which will hurt GDP growth rates in every region.

And, ironically or by coincidence, leaders will have an opportunity to dialogue and implement a common strategy: officials from the International Monetary Fund, World Bank, and Group of Seven (G-7) nations meet in Washington, D.C. this weekend for their previously-scheduled annual meeting.

One of the most intriguing questions amid the stock market's recent slump and the three-year-plus bull run in commodities, especially oil, concerns whether or not investment funds and hedge funds have artificially boosted commodity prices.

One camp argues that hedge/investment funds now have the capacity to "distort" prices beyond what a sector's fundamentals suggest the price should be. Another camp argues that the valuation of "distort" is subjective, and in any case the market will quickly self-correct for the error, when the bubble or trough, ends.

When making arguments before Congress and other groups, the price distortion camp can point to two recent data points to make their case. First: the $23 per barrel rise in the price of oil to $111.80 from about $87 from mid-February 2008 to mid-March 2008. Second: the 14 cent jump in wholesale unleaded gasoline to $2.77 per gallon on April 2, 2008.

Inventory data

Concerning oil, there has been no fundamental change in global oil supply or demand in the past quarter. If anything, demand growth moderated in the period. Further, oil inventories in the world's largest consuming nation, the United States, rose during the period. Still, oil prices rocketed 26% during the period to record highs.

The ever-incisive FT columnist Martin Wolf offers a stark and sober analysis of the United States' current financial and economic predicament, but it's an analysis well-worth reviewing, if one has the time.

A synopsis is provided here, but first, full warning: read the analysis when you're feeling well and in a good mood, not during other times.

The ever-incisive FT columnist and economist Martin Wolf has some good news for investors, who are no doubt weighed down by the cacophony of pessimism permeating the U.S. stock and bond markets these days.

Wolf argues that the U.S. housing recession and accompanying credit market concerns are huge dangers, for the U.S. and for the rest of the world, and a bumpy road is ahead, but the public sector, led by the U.S. Federal Reserve, is now coming to the rescue.

Before offering his likely scenario for a return to economic health, Wolf summarizes a worst-case-scenario from Nouriel Roubini, economics professor at New York University and founder of RGE Monitor. (Fair warning: Roubini's scenario represents the bleakest of the bear views, hence it's best not to read it on a day when the Dow is down 300 points, etc.)

While recognizing that Roubini's scenario is plausible, Wolf argues that it's not likely to occur, at least not to the degree Roubini suggests.

I wrote yesterday about the recent Chinese veiled threat to dump its dollar holdings if the U.S. raises tariffs in hopes of coercing them to let the Yuan rise against the dollar. Today I had the opportunity to pick the brain of an expert on the topic, Brad Setser, Chief Economist at RGE Monitor and former acting director of the Office of International Monetary and Financial Policy at the U.S. Treasury.

My first question to him was, is this a credible threat? Setser didn't believe so, because it would represent a huge shift in China policy. The Chinese government, he explained, has shown a consistent bias toward supporting the country's exports, even at the cost of holding onto dollars as their value drops against other world currency. In fact, China continues to bolster its dollar holdings, adding $350-400 billion this year alone.

Setser went on to explain that, in his opinion, the Yuan was currently undervalued against the dollar by approximately 30%. If such an imbalance were abruptly corrected it would dramatically disrupt their export market.

He went on to say that China is in effect swallowing huge losses by holding dollars in order to support their exports, but the current regime has not indicated any likelihood to change that position.

However, he cautions, tensions between the two countries are growing, as the Chinese government takes umbrage at the growing movement in the U.S. to address the trade imbalance with legislation.

My take from this discussion: a change in the status quo is not in the offing, but the trade discussions in Congress are being watched carefully by the Chinese government. In the political season we are entering, pro-tariff campaign rhetoric could bring about more threats of reprisal.