The case for a second recession

The markets have largely shrugged off damaging world events until recently. Now the possibility of another downturn is too stark to ignore.

By Kim Peterson Jun 24, 2011 3:43PM
The ever-gloomy Nouriel Roubini lays the scenario for another recession. If there was ever a time for it to happen, now would be right.

First, he looks at the combination of weird slams to the global economy this year. The earthquake in Japan disrupted some of the world's supply chains. The turmoil in the Middle East has contributed to the runup in oil prices and the corresponding spike in gasoline prices (both of which, thankfully, have come down).

Add to that the financial instability in Greece, Ireland and Portugal. And don't forget the rising prices for food and commodities, stoking concerns about high inflation.

The markets seemed to discount these shocks until recently, Roubini writes in Slate. Investors largely shrugged off the events, sending markets up and up. But that changed at the end of April, when a more persistent correction set in, he added.

So now it's unclear whether that persistent correction will turn into a second recession. Is the global economy merely in a soft patch, full of temporary speed bumps but headed to another rally in the second half of the year?

Roubini says that factors pointing to a more persistent slump. Some European countries are facing actual insolvency, and with public and perhaps private debts in Greece, Ireland and Portugal needing restructure.

The U.S. has its own problems, including deleveraging, weak job creation, an ongoing housing slump, an unsustainable deficit, a monstrous federal debt burden and serious financial woes at state and city levels.

The U.K. has had flat economic growth, he adds. Japan is slipping into an earthquake-induced recession.

If the latest global economic data reflect something more serious than a hiccup, and markets and economies continue to slow, policymakers could well find themselves empty-handed. If that happens, the risk of stall speed or an outright (second) recession would rise sharply in many advanced economies.


7Comments
Jun 25, 2011 9:45PM
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Wow...I am sure many in the United States feel the recession never ended.  Higher gas, food and just about everything else and then you factor in all the people without jobs and whose unemployment ran out along time ago make this recession feel very much alive and well.  Tell them the recession has been over.  Jobs...what jobs???  Some will never work again.  And we all know that unemployment is far higher than 9%.  Please, who are they trying to convince?
Jun 26, 2011 4:02PM
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Thinking dav and luke - no worries.  you are approaching a scientific analysis of possibility and probability by a very smart guy with a doctorate in economics - the overall macroeconomic realities are simply beyond your ken.

 

it all begins with passage of a debt ceiling increase, budget, and deficit reduction according to the bi-partisan debt reduction commission report (which you obviously have not yet read).  the six republican congressman who crafted the report and agreed that tax revenues must be increased are now apparently frozen out by boehner and voting party-line as usual.  we have term limits - vote these idiots out of office next time you go to the polls.  and by the way, enlightened capitalism includes transition / temporary transfer payments to those without jobs.  only the long-term scofflaws who refuse work should be excluded - don't throw the baby out with the bathwater for the there but for the Grace of God go thou.

 

now lukester. ok "for those in pain, the recession is over and we are entering a period of long, slow, painful recovery because of our stupid election decisions over the past thirty years."  there are plenty of jobs for those who get retrained, those who enter the bottom rung of healthcare (nurse aids) and for those willing to start over and for those willing to relocate and work hard (mining, dakota's, etc.).  whining will not improve anything nor will "cutting spending" or "cutting taxes" or "throw out the donkeys."  re-read the article and pay close attention to the long-term systemic problems that we created for ourselves by having a standard of living far beyond our means and the rest of the world.  time to man-up and put a lid on the whining.  "they" are not trying to convince anyone - these are the facts jack - adapt and survive. this is, after all, America the Land of Opportunity ..... remember?

 

we have the ability to recover and be great again ... but we must change NOW .... 

Jun 25, 2011 3:58PM
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governments can not hire enough people to get us out of a recession.  We can make it but we have to make government effective again by cutting government expenses 10% a year for 5 years.  At the same time we will need to spend money on our natural gas, clean coal, nuclear power, water systems, dams, and mass transit. It would be nice to put education back into the hands of local school boards.  Government should have a budget of 10% of GDP.  We need term limits and reverse the health care bill.  We will only make it through creating a better capitalistic system.  (Socialism )transfering payments from people earning money to  non-workers will fail.
Jun 27, 2011 7:09AM
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I don't know where you are from, but around here, restaurant chains are still going out of business, in fact, near here, there is an absolute fire-sale going on in vacation real estate, including restaurants and other vacation-related businesses.  Frontier Airlines is hanging on the ragged edge and so is the restaurant chain Perkins, despite our local unemployment rate here in the Denver region staying below 8%.  What about Sears and K-Mart, Borders, and a dozen other major retail chains all barely hanging on?  What about all of the major urban areas where the unemployment rate and foreclosure rates are still well into the double digits?  Frankly I think that anyone who suggests that we are still in some kind of economic recovery is lying through their teeth.  There may some areas, regions, and industries that are doing better than others, but an average 20% equities markets loss since March that does not make for much of a recovery.  On a brighter note, there are just another 37 shopping days left (for precious metals) until August 2nd!!!         
Jun 26, 2011 9:28PM
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OUR GOVERNMENT SAID LAST YEAR THAT THE RECESSION ENDED 2 YEARS AGO, BELIEVE WHAT YOU WANT BUT THE RECESSION IS ALIVE AND WELL IN MY HOUSEHOLD. ANYBODY WHO TRUST WHAT OUR GOVERNMENT SAYS NEED THEIR HEADS EXAMINED
Jun 26, 2011 9:27PM
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Smile No double dip but watch out for inflation beyond 2013 as everyone prints their way out of the debt and real estate crisis. They'll also cut spending and eliminate tax deductions for obvious inequities in corporate and individual tax codes.  The EU and US will kick the debt can down the road. The US will have to vote in 2012 on whether or not to strengthen Medicare and Social Security, vote Democrat, or keep taxes low, vote Republican, on upper classes.  I'll bet the boomers will vote Democrat and they'll be a majority in Congress and White House to cap deductions for upper classes and maybe increase tax rates.  Slow recovery will be painful for Obama.
Jun 24, 2011 11:42PM
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Ya and the sun won't come up tomorrow either.  The world might end, the GOP might get back in power.  your're off base,  look at the big picture for once.
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