Nouriel Roubini, Professor of Economics at the Stern School of Business, New York University and co-author of the book Crisis Economics, was one of the only economists who recognized the housing bubble and predicted the Great Recession.
In a new article,appropriately entitled Double Dip Days, he argues:
The global economy, artificially boosted since the recession of 2008-2009 by massive monetary and fiscal stimulus and financial bailouts, is headed towards a sharp slowdown this year as the effect of these measures wanes. Worse yet, the fundamental excesses that fueled the crisis – too much debt and leverage in the private sector (households, banks and other financial institutions, and even much of the corporate sector) – have not been addressed.
Private-sector deleveraging has barely begun. Moreover, there is now massive re-leveraging of the public sector in advanced economies, with huge budget deficits and public-debt accumulation driven by automatic stabilizers, counter-cyclical Keynesian fiscal stimulus, and the immense costs of socializing the financial system’s losses.
At best, we face a protracted period of anemic, below-trend growth in advanced economies as deleveraging by households, financial institutions, and governments starts to feed through to consumption and investment...
The global slowdown – already evident in second-quarter data for 2010 – will accelerate in the second half of the year. Fiscal stimulus will disappear as austerity programs take hold in most countries. Inventory adjustments, which boosted growth for a few quarters, will run their course. The effects of tax policies that stole demand from the future – such as incentives for buyers of cars and homes – will diminish as programs expire. Labor-market conditions remain weak, with little job creation and a spreading sense of malaise among consumers.
The likely scenario for advanced economies is a mediocre U-shaped recovery, even if we avoid a W-shaped double dip. In the US, annual growth was already below trend in the first half of 2010 (2.7% in the first quarter and estimated at a mediocre 2.2% in April-June). Growth is set to slow further, to 1.5% in the second half of this year and into 2011.
Whatever letter of the alphabet US economic performance ultimately resembles, what is coming will feel like a recession.
The entire article is linked.
Showing posts with label Great Recession. Show all posts
Showing posts with label Great Recession. Show all posts
Sunday, July 25, 2010
Wednesday, January 27, 2010
Great recession worse than any post WWII downturn
Voters' anxiety over the state of the economy continues to rise.This anxiety is warranted. The chart below compares the growth of gross domestic product (GDP) since the beginning of the current recession in 2008 to previous recessions. GDP is the broadest measure of economic performance, tracking the market value of all goods and services produced in the United States.
The most recent recession is notable not just for the severity of economic contraction but also the length of decline. As the figure shows, in the nine previous recessions on record, by seven quarters after the official start of the recession the economy had actually grown by an average of 4% compared to its pre-recession peak.
However, seven quarters after the current recession began, the economy remains 3.2% smaller than its pre-recession peak. This is true even though the third quarter of 2009 saw the first positive growth in GDP in a year. Despite the GDP uptick in the most recent quarter, the current recession remains the worst performer on record this long after a business cycle peak. The economy failed to recover its pre-recession peak after seven quarters only once before, following the 1973 recession.
Tuesday, January 5, 2010
Too soon to declare victory over Great Recession
Nobel Prize winning economist Paul Krugman warns that the economy's recovery could be derailed if policy makers declare victory too soon.
He writes:
The next employment report could show the economy adding jobs for the first time in two years. The next G.D.P. report is likely to show solid growth in late 2009. There will be lots of bullish commentary — and the calls we’re already hearing for an end to stimulus, for reversing the steps the government and the Federal Reserve took to prop up the economy, will grow even louder.
But if those calls are heeded, we’ll be repeating the great mistake of 1937, when the Fed and the Roosevelt administration decided that the Great Depression was over, that it was time for the economy to throw away its crutches. Spending was cut back, monetary policy was tightened — and the economy promptly plunged back into the depths.
Krugman concludes:
Will the Fed realize, before it’s too late, that the job of fighting the slump isn’t finished? Will Congress do the same? If they don’t, 2010 will be a year that began in false economic hope and ended in grief.
The entire column is linked.
He writes:
The next employment report could show the economy adding jobs for the first time in two years. The next G.D.P. report is likely to show solid growth in late 2009. There will be lots of bullish commentary — and the calls we’re already hearing for an end to stimulus, for reversing the steps the government and the Federal Reserve took to prop up the economy, will grow even louder.
But if those calls are heeded, we’ll be repeating the great mistake of 1937, when the Fed and the Roosevelt administration decided that the Great Depression was over, that it was time for the economy to throw away its crutches. Spending was cut back, monetary policy was tightened — and the economy promptly plunged back into the depths.
Krugman concludes:
Will the Fed realize, before it’s too late, that the job of fighting the slump isn’t finished? Will Congress do the same? If they don’t, 2010 will be a year that began in false economic hope and ended in grief.
The entire column is linked.
Sunday, September 6, 2009
Economic recovery requires jobs recovery
In an editorial Saturday The New York Times writes that until the economy begins creating jobs (it lost another 216,000 last month) hopes for a recovery will remain little more than hope:
...the only good thing to say about the August jobs report is that it could have been worse. Employers shed another 216,000 jobs last month, a smaller loss than expected and the lowest monthly loss total in a year.
The losses would have been worse had it not been for federal stimulus spending — proof that the government is indeed helping to ease the downturn in its role as the spender of last resort.
Still, the damage to the work force caused by the recession is deep, wide and ongoing. The economy is now coming up short by 9.4 million jobs, including 6.9 million positions that employers have eliminated and 2.5 million jobs that were needed to absorb new workers but were never created.
And unemployment is on the rise, jumping from 9.4 percent in July to 9.7 percent in August. For several demographic groups, the unemployment rate is already in double digits, including men (10.1 percent), Hispanics (13 percent), African-Americans (15.1 percent) and teenagers (25.5 percent). In all, 14.9 million workers are now jobless, of which fully one-third have been out of work for more than six months, the highest level of long-term unemployment by far in any post World War II recession. There are now nearly six workers available for every job opening, up from 1.7 workers per opening when the recession began in December 2007.
Worse, hiring is not expected to rebound anytime soon, even if overall economic growth resumes this year. Employers are likely to fill any additional workloads by adding hours to truncated workweeks and ending worker furloughs. Wage gains, which are always repressed when jobs are scarce and unemployment is high, will be an even longer time coming as employers restore pay cuts put in place during the recession before giving raises.
Without job growth and pay raises, consumer spending will not revive substantially because alternative sources of spending power — home equity and credit cards — are largely tapped out. And without an upsurge in spending, businesses will not add workers, and so on, in a decidedly unvirtuous cycle.
It has become commonplace to explain each dismal job report by saying that a resurgence in employment always lags general economic recovery. But with the job market severely wounded, and with consumer spending expected to be weak for a very long time, it could easily take until 2014 for employment to recover. It’s safe to say that five years or more of subpar job growth is not what most people have in mind when they think of a “lag.”
The question, then, is how bad does it have to get before the Obama administration and Congress make job creation a priority.
Will administration officials and lawmakers fight for new laws to make it easier to form unions, which are especially important in elevating and protecting the jobs of low-income workers? How will professed support for green jobs be translated into a manufacturing policy that promotes good jobs? Will efforts to improve the educational system also include serious efforts to train and retrain people for new jobs?
Help is wanted for out of work Americans.
...the only good thing to say about the August jobs report is that it could have been worse. Employers shed another 216,000 jobs last month, a smaller loss than expected and the lowest monthly loss total in a year.
The losses would have been worse had it not been for federal stimulus spending — proof that the government is indeed helping to ease the downturn in its role as the spender of last resort.
Still, the damage to the work force caused by the recession is deep, wide and ongoing. The economy is now coming up short by 9.4 million jobs, including 6.9 million positions that employers have eliminated and 2.5 million jobs that were needed to absorb new workers but were never created.
And unemployment is on the rise, jumping from 9.4 percent in July to 9.7 percent in August. For several demographic groups, the unemployment rate is already in double digits, including men (10.1 percent), Hispanics (13 percent), African-Americans (15.1 percent) and teenagers (25.5 percent). In all, 14.9 million workers are now jobless, of which fully one-third have been out of work for more than six months, the highest level of long-term unemployment by far in any post World War II recession. There are now nearly six workers available for every job opening, up from 1.7 workers per opening when the recession began in December 2007.
Worse, hiring is not expected to rebound anytime soon, even if overall economic growth resumes this year. Employers are likely to fill any additional workloads by adding hours to truncated workweeks and ending worker furloughs. Wage gains, which are always repressed when jobs are scarce and unemployment is high, will be an even longer time coming as employers restore pay cuts put in place during the recession before giving raises.
Without job growth and pay raises, consumer spending will not revive substantially because alternative sources of spending power — home equity and credit cards — are largely tapped out. And without an upsurge in spending, businesses will not add workers, and so on, in a decidedly unvirtuous cycle.
It has become commonplace to explain each dismal job report by saying that a resurgence in employment always lags general economic recovery. But with the job market severely wounded, and with consumer spending expected to be weak for a very long time, it could easily take until 2014 for employment to recover. It’s safe to say that five years or more of subpar job growth is not what most people have in mind when they think of a “lag.”
The question, then, is how bad does it have to get before the Obama administration and Congress make job creation a priority.
Will administration officials and lawmakers fight for new laws to make it easier to form unions, which are especially important in elevating and protecting the jobs of low-income workers? How will professed support for green jobs be translated into a manufacturing policy that promotes good jobs? Will efforts to improve the educational system also include serious efforts to train and retrain people for new jobs?
Help is wanted for out of work Americans.
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