U.S. on track for "fiscal train wreck": Roubini

LONDON Fri Oct 29, 2010 9:18am EDT

Nouriel Roubini, Professor of Economics at New York University and Chairman of Roubini Global Economics speaks at the opening session ''Rebalancing the Global Economy'' at the Global Financial Forum in New York April 26, 2010. REUTERS/Mike Segar

Nouriel Roubini, Professor of Economics at New York University and Chairman of Roubini Global Economics speaks at the opening session ''Rebalancing the Global Economy'' at the Global Financial Forum in New York April 26, 2010.

Credit: Reuters/Mike Segar

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LONDON (Reuters) - The U.S. economy is a "fiscal train wreck" waiting to happen that risks ushering in a period of stagnation featuring by minimal growth, high unemployment and deflationary pressure, U.S. economist Nouriel Roubini wrote on Friday.

In a commentary for the Financial Times, Roubini -- one of the first economists to predict the housing crash in the United States and known as 'Dr Doom' for his pessimistic forecasts -- said fiscal and monetary stimulus had prevented another depression.

But he said that further quantitative easing likely to be announced by the Federal Reserve next Wednesday will have little effect on U.S. growth in 2011, "so fiscal policy should be doing some of the lifting to prevent a double dip recession," he said.

He said the U.S. remains on an "unsustainable fiscal course" and the likely make-up of Congress after elections next Tuesday, in which the Republicans look set for strong gains, virtually takes fiscal reform off the agenda.

"The risk ... is that something on the fiscal side will snap ... The trigger could be a debt rollover crisis in a major U.S. state government," he wrote.

"The worst of the coming fiscal train wreck will be prevented by the Fed's easing. But the risk is (Obama) ... will then preside over ... a Japanese style stagnation, where growth is barely positive, and deflationary pressures and high unemployment linger."

(Reporting by John Stonestreet; editing by Patrick Graham)

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Comments (42)
iambemsued wrote:
An unfortunate outcome of a central bank trying to do the government’s job.

Throwing money at market institutions without any strings attached is so ludicrous that it beggars belief. Especially when they are the same institutions that created the current debacle in the first place. Why on earth would they invest cheap funds into local risky enterprises when they can simply invest into cash instruments or seek higher returns overseas?

If the US policymakers were able to lift themselves above partisan politics and actually put in place policies to encourage employment and productive enterprise (based in the US) then maybe there is a chance for the country… but that seems a far-fetched hope when you look at the polarised comments on sites such as this.

Any such discussion is immediately labelled “socialist” and back we go to the respective political corners.

Oct 29, 2010 4:53am EDT  --  Report as abuse
minipaws wrote:
Reuters – I don’t understand how the government can keep printing money and we can go into stagnation. I would be very interested in an article or comments that explain this.

Oct 29, 2010 4:59am EDT  --  Report as abuse
yr2009 wrote:
@minipaws

Stagflataion

Oct 29, 2010 7:18am EDT  --  Report as abuse
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