Thursday, August 26, 2010

Roubini: Double Dip Recession Now 40%; Growth to be Zero, Fed Out of Bullets, Deflation

According to the ubiquitous Nouriel Roubini, the chances of a double-dip recession have increased to over 40%.

Roubini also said growth will be closer to 0% in the second half of 2010.

Q2 GDP growth will be actually revised down to an a annual rate of 1.2% Roubini said, as according to him, any improvement recently was because of to inventory adjustments.

"The fiscal stimulus will become a drag on growth in the second half of the year, inventory adjustment will have run their course, and there won't be a favorable comparison with the "awful" first half of 2009"

"the employment boost from the census survey will disappear, and there will no longer be a number of tax policies that stalled demand and growth for the future,"

Roubini added that from a monetary policy perspective, the scenario is worse than last year "as all of the Fed's policy bullets will pretty much be gone".

"Banks today are sitting on $1 trillion of excess reserves that they are not lending out" and earning 0.25 percent on, he said. "Why would they want to lend more if we do more QE?"

"The U.S. is facing a liquidity trap", "... with companies discounting prices and a glut in the labor market, the biggest threat to the economy is deflation".

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