Amongst my somewhat copious pile of holiday reading books, I have a hardback edition of Crisis Economics by Nouriel Roubini – aka Dr. Doom – which I much look forward to reading (after finishing ploughing through Tom Bower’s weighty tome on Oil – Money, Politics, and Power in the 21st Century – of which more, later).
Roubini, you should know, is the man who told a sceptical crowd of senior economists at the IMF in September 2006 that “. . . the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession”. According to the New York Times “. . . he then laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt. These developments, he went on, could cripple or destroy hedge funds, investment banks and other major financial institutions like Fannie Mae and Freddie Mac“.
Well, I hardly need tell you that he has the great privilege of knowing that he was right. So that’s why I can’t help but play close attention to what he said a week ago on CNBC because if anything, we have all failed to listen enough to the pessimists;
The long and short of it is if US growth is much less than capacity of 2.75-3.00% and comes in at 1.5% as he thinks, there will be net job losses rather than net job creation, aggregate demand will go down, negative feedback kicks in and the risk of a double dip recession rises dramatically.
So if, as per my earlier post, you accept that the UK is 6 months behind the USA, then I suspect these problems will hit us from the 1st quarter of 2011.