Nouriel Roubini’s Economic Crystal Ball

How many of you knew, upwards of 2 years ago, what was coming economically and started preparing?  How many of you started living more frugally in order to pay off debt, and put yourself in a position of just a bit of breathing room when the economy really tanked a year ago?  How many of you know that it is not going to get any better anytime soon, and that the “don’t spend while we wait and see” mentality is likely to get stronger?  Well, an economic guru who saw the housing market collapse and other burst bubbles agrees with you, and is giving his view of the future.

Do not be upset with the messengers.  You know your instincts and basic math ability are on the money after watching how Bush, Obama, Paulson, Geithner and Bernanke have been handling the situation.  I feel like I am watching Nero fiddling while Rome burns.

The Worst is yet to Come: Unemployed Americans Should Hunker Down for More Job Losses

Nouriel Roubini | Nov 15, 2009

From the Daily News:

Think the worst is over? Wrong. Conditions in the U.S. labor markets are awful and worsening. While the official unemployment rate is already 10.2% and another 200,000 jobs were lost in October, when you include discouraged workers and partially employed workers the figure is a whopping 17.5%.

While losing 200,000 jobs per month is better than the 700,000 jobs lost in January, current job losses still average more than the per month rate of 150,000 during the last recession.

Also, remember: The last recession ended in November 2001, but job losses continued for more than a year and half until June of 2003; ditto for the 1990-91 recession.

So we can expect that job losses will continue until the end of 2010 at the earliest. In other words, if you are unemployed and looking for work and just waiting for the economy to turn the corner, you had better hunker down. All the economic numbers suggest this will take a while. The jobs just are not coming back.

There’s really just one hope for our leaders to turn things around: a bold prescription that increases the fiscal stimulus with another round of labor-intensive, shovel-ready infrastructure projects, helps fiscally strapped state and local governments and provides a temporary tax credit to the private sector to hire more workers. Helping the unemployed just by extending unemployment benefits is necessary not sufficient; it leads to persistent unemployment rather than job creation.

The long-term picture for workers and families is even worse than current job loss numbers alone would suggest. Now as a way of sharing the pain, many firms are telling their workers to cut hours, take furloughs and accept lower wages. Specifically, that fall in hours worked is equivalent to another 3 million full time jobs lost on top of the 7.5 million jobs formally lost.

This is very bad news but we must face facts. Many of the lost jobs are gone forever, including construction jobs, finance jobs and manufacturing jobs. Recent studies suggest that a quarter of U.S. jobs are fully out-sourceable over time to other countries.

Other measures tell the same ugly story: The average length of unemployment is at an all time high; the ratio of job applicants to vacancies is 6 to 1; initial claims are down but continued claims are very high and now millions of unemployed are resorting to the exceptional extended unemployment benefits programs and are staying in them longer.

Based on my best judgment, it is most likely that the unemployment rate will peak close to 11% and will remain at a very high level for two years or more.

The weakness in labor markets and the sharp fall in labor income ensure a weak recovery of private consumption and an anemic recovery of the economy, and increases the risk of a double dip recession.

As a result of these terribly weak labor markets, we can expect weak recovery of consumption and economic growth; larger budget deficits; greater delinquencies in residential and commercial real estate and greater fall in home and commercial real estate prices; greater losses for banks and financial institutions on residential and commercial real estate mortgages, and in credit cards, auto loans and student loans and thus a greater rate of failures of banks; and greater protectionist pressures.

The damage will be extensive and severe unless bold policy action is undertaken now.

Roubini is professor of Economics at the Stern School of Business at New York University and Chairman of Roubini Global Economics.

Bush and Obama have not done anything but pay lipservice to the engine and job creator of our economy, small business.  What do your instincts tell you?  Quite the opposite.  Everything that has been done has been to demoralize the population with class division, and destroy capitalism by destroying jobs and small businesses.   What good is a bank that does not make loans, or an administration that does not feed the nation in a time of economic crisis through it’s small businesses?  “Green shoots” are all fine and good, but the average American cannot eat them and 2010 is just around the corner.

7 thoughts on “Nouriel Roubini’s Economic Crystal Ball

  1. As much as I hate to say it, many of us in the financial industry have had our best year since 2007. Banks and customers have loosened their fears and loans are out there in the form of new products for all types of needs. Investors are back on track and doing deals but it may not be felt for a while. I have to be honest, there is money out there now, when the last 2 years there was nothing but a freeze on lending, and investor fear was huge, paralyzing the banking system. We have safer new product for people and it’s going to take a short while to cycle into other markets where it can be felt. It was the first to collapse on Christmas 2006 to a slow domino effect and it will be the thing that may heal us being the first to make a comeback. I’m not tooting any horns but I cannot sit silent when I know better. Stop panicking. It hasn’t been this good since the collapse that Christmas Eve in 2006 when Indy Mac failed, causing up to 400 banks to follow over the course of the last 2 years. Home prices have been stabilized and people are buying. California is making a come back in the housing market and as California goes, so goes the nation. There is money to be had. Go borrow some. Be a part of the solution instead of “hunkering down”. That’s what bankers and customers did in 2007 and 2008 and it clearly didn’t work. It’s our time now to pick up the pieces and move on. All my life I heard of doomsday stories and this time this is just that. A story. Believe it or not, we are coming out of this even though the amount of jobs available in the newpaper is reduced to 1.5 pages from 10. The first to collapse is now the first to recover and the last to collapse (jobs) will be the last to recover. It’s just the way it goes. Would have happened no matter who is pretendident. It’s the market and I saw it collapsing before anyone else and now I see it coming back up before anyone else. However, in both instances no one who is/was not a part of the action on the front lines believed me.

  2. I’m glad to hear you are doing so well…as for the rest of us – it’s hard to “go borrow some” when you have been laid off because your former boss is about to lose his company, your town is starting to look like Flint, Michigan, and you know if there is one more bump in the road in your daily life, you will be going to the food bank to feed your child. THAT is the reality for millions of Americans. BTW – I am not panicking, I’ve been living the nightmare since before December 2006.

  3. I have to add one more thing “Cant”. What you are seeing in America today is the average American has realized where the “buy now and pay later” addiction has gotten us with all the bailouts and red ink that we are about to endure and pass on to our children – and we are saying “No More”. You are looking at cold turkey time and let the chips falls where they may. It’s time to put a floor under the fall – not start another spending cycle and worry about it later. We are done with the games.

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  6. Why can’t everyone realize that the government has NO intention of helping the economy? The idea is to make America a third world country. Most of our good paying jobs have been out-sourced. There will be no help from either party, as they are really one party. For the most part the bailouts went to the banks, period. It’s really not very complicated to understand this. If the idea was to rebuild America they would be doing it. However, what they want to do is take us back to the pre-industrial age.

    It’s the responsibility of the American people to wake up and take the bums out of office. People are not going to wake up, though, unless they turn off their freaking TVs, stop eating genetically modified food, and drinking fluoride.

    That’s my rant for the day.

  7. Everything CA Patriot said was also true of Reagan. About 28 years ago, my next door neighbor, a retired CIA financial analyst, told me what Reagan was trying to do. He said he wanted the country to go back to how things were during the 1930s, during the Great Depression. Back then, there were the wealthy and a huge underclass willing to work for very low wages. Reagan wanted a return of that underclass with the thought that cheap labor would help keep us competitive with China. Of course, the history is that unions pushed wages higher, the globalists shipped jobs overseas, and we’re deeply in debt to China.

    I read the Roubini comments yesterday and also what Meredith Whitney said on CNBC. Here’s an outline:

    http://www.streetinsider.com/Analyst+Comments/Meredith+Whitney+Says+Sell+the+Banks,+Believes+Everything+is+Expensive+Right+Now/5113857.html

    I think the stock market will continue to go up, with some profit taking along the way, until interest rates start going up and that won’t happen for several months. First, some unwinding of the quantitative easing as the Fed adjusts its balance sheet. The process will be gradual.

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