The Recession Cometh
THE RECESSION COMETH....Atrios points us to the latest from Nouriel Roubini, the Cassandra of the banking crisis:
Nouriel Roubini, the professor who predicted the financial crisis in 2006, said the U.S. will suffer its worst recession in 40 years, causing the rally in the stock market to "sputter.''
"There are significant downside risks still to the market and the economy,'' Roubini, 50, a New York University professor of economics, said in an interview with Bloomberg Television. "We're going to be surprised by the severity of the recession and the severity of the financial losses.''
The economist said the recession will last 18 to 24 months, driving unemployment to 9 percent, and already depressed home prices will fall another 15 percent. The U.S. government will need to double its purchase of bank stakes and force lenders to eliminate dividends to save them from bankruptcy, Roubini added.
This actually sounds about right to me. Another round of recapitalization strikes me as at least a 50-50 probability; forcing banks to suspend dividends sounds like a painful but necessary move; and there's really no question that we're headed into a fairly deep recession. In fact, what really surprises me is that it's only in the past week or so that newspapers have stopped running fatuous headlines along the lines of "Is U.S. Slipping Into Recession?" Of course the U.S. and the rest of the world are slipping into recession. Frankly, I think that's been obvious for months, but certainly nobody sentient could have doubted it anytime after mid-September.
And my arcane concerns about the current account deficit notwithstanding, massive stimulus is pretty obviously the right fiscal response to this now that monetary policy has been mostly played out. Along those lines, check out Steve Teles for some good ideas on what a stimulus package should look like. "Right now the Democrats are in danger of doing the obvious," he warns, "which will be bad economics, bad government, and bad politics. Someone needs to get them thinking bigger." Get to work, blogosphere!