Roubini's free riding on his own media appearances, so I've got no worries about taking a long excerpt today:
Mr. Roubini first forecast a slowdown in the fall of 2005 and said the U.S. housing bubble was heading for a bust in early 2006 just as housing starts peaked. By August 2006, while many economists were still forecasting a soft landing, he said the recession of 2007 would be nasty, brutish and long.
This February, Mr. Roubini predicted "one or two large and systemically important broker dealers" would "go belly up," and credit market losses stemming from the subprime meltdown could top US$1-trillion.A few weeks later, Bear Stearns collapsed and the International Monetary Fund came up with a remarkably similar prediction of losses: US$945-billion. It must be pointed out, however, the IMF estimate is only an estimate of losses that might be realized if distressed securities had to be sold or marked-to-market at current prices. Some of the assets are now attracting buyers.
In that view then, the estimates are still a worst-case scenario. Mr. Roubini has, in fact, recently raised his credit loss forecast to US$1.7-trillion as corporate losses pile on.
He says the stock market is following the same pattern it did in the 2001 recession. It started in March and by April the S&P 500 rose 18% on the view Fed interest rate cuts would stave off a recession. When it couldn't, the market eventually fell off a cliff, dropping 42%.
The S&P 500 typically drops 28% in a recession, Mr. Roubini says, and having only come off 12% so far, it has a long way to go, he said.
Canada will not be immune. A U.S. recession of the duration he is predicting will drag down growth in China and the rest of the world and the idea the rest of the world can decouple from the United States goes out the window, Mr. Roubini said.
That could knock commodity prices back 20% to 30% and remove a significant strut of the Canadian economy.
Mr. Roubini is basing his prediction that the U.S. is facing the worst recession in decades on the view house prices will tumble a total of 30% -- they have dropped 10% so far -- wiping out US$6-trillion in home equity and putting 21 million households, or 40% of all mortgage-holders, in a negative equity position. Corporate America will be the next to suffer and the credit crisis will continue to spread, Mr. Roubini said.
Nasty, brutish, and long. Wonderful.
Not to pile on, but I might as well, well... pile on:
The federal deficit through the first half of this budget year is at an all-time high, underscoring the pressure the budget is coming under as the overall economy slumps.The Treasury Department reported Thursday that the deficit through the first six months of the budget year totaled $311.4 billion, up 20.5 percent from the same period a year ago. That was the largest deficit for the first half of a budget year on record, surpassing the old six-month mark of $302 billion set in 2006.
The Bush administration, when it sent its budget proposal to Congress in February, estimated that the deficit for the whole year will total $410 billion, putting it very close to the all-time high in dollar terms of $413 billion.
Ain't Republican economics just grand?
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