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.
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.
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