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Roubini: Worst U.S. Recession in 50 Years

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November 20, 2008 – Comments (3)

Thursday, November 20, 2008 10:13 AM

By: Dan Weil

Economist Nouriel Roubini, who correctly forecast the current financial crisis, believes the U.S. economy will suffer its most severe downturn since the 1950s thanks to that crisis.

“I expect the worst U.S. recession in 50 years,” he told Bloomberg TV. “There will be a cumulative fall in output of 4 percent from the peak, and unemployment will jump to 9 percent.”

The economic news just keeps getting worse for consumption, investment, and housing, Roubini points out. Retail sales and capital expenditures are tumbling.

“Fully 85 percent of aggregate demand — consumption and fixed investment — is now in free fall,” he says.

Federal Reserve interest rate cuts, which have brought the federal funds rate down 525 basis points to 1 percent, will have little impact, Roubini argues.

“They’ll probably cut another 50 basis points, but the trouble is that the rate is already close to zero, yet market rates are higher,” he says.

“The spread of high-yield bonds relative to Treasuries is 14 percentage points, like we’ve never seen before. There is a major credit crunch, so it doesn’t matter what the Fed does.”

Roubini says the economy needs “a major aggressive fiscal stimulus, a $300 billion to $400 billion package, because private demand is collapsing.”

Former Treasury Secretary Lawrence Summers, a potential Obama pick for Treasury secretary, feels the same way about a stimulus.

“I would go for speedy, substantial and sustained stimulus over a several-year interval,” he said at a recent conference.

© 2008 Newsmax. All rights reserved.

3 Comments – Post Your Own

#1) On November 20, 2008 at 12:09 PM, jeffduby (20.57) wrote:

Good article. Although I am no economist, I can't help but think that a tax cut is the same as "fiscal stimulus". The only difference is that the federal government doesn't get to tax us twice. It's funny that we are being taxed on our income and then provided with a stimulus check that we are taxed on again. sigh....

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#2) On November 20, 2008 at 12:52 PM, jgseattle (32.68) wrote:

The stimulative affect of tax cuts is less than government spending.  Why.

1)  Some portion of tax cuts are saved.

2)  Some portion of tax cuts are used to pay down debt, past consumption.

I like spending on infrastructure and alt energy and anything that will reduce the flow of dollars out of the US in the form of trade deficits.

 

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#3) On November 20, 2008 at 11:44 PM, kerg01 (< 20) wrote:

In general government stimulous packages dont work and develop a great deal of malinvestment which must then be liquidated later....for example the Hoover administration spent a great deal of money on "public works" stimulous programs that did nothing for the Great Depression, Japan had no less that 13 stimulous packages during the "lost 90s".  I would much prefer the Govt cut spending, cut taxes and blance the budget.  Once the economy corrects for all of this malinvestment, we should get rid of the federal reserve and fractional reserve banking forever....that is unless we want to repeat this nightmare again in the future.....

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