More Gloom from Dr. Doom

In an op-ed piece in today's Globe and Mail, uber-pessimist Nouriel Roubini offers up nine reasons why this recession will not end any time soon.

He does not suggest that policy makers got it wrong. Much the opposite, noting that

. . . global policy makers got religion and started to use most of the weapons in their arsenal: vast fiscal-policy easing; conventional and unconventional monetary expansion; trillions of dollars in liquidity support, recapitalization guarantees and insurance to stem the liquidity and credit crunch; and finally, massive support to emerging-market economies.

Though "Dr. Doom" is relentlessly downbeat, we would do well to remember how often he has been right. As the article is only available to Globe subscribers, I will summarize his nine points:

1. Employment is still falling and will continue to do so through 2010;
2. there has not been any real deleveraging--debt has not been reduced but instead socialized;
3. countries running huge current-account deficits need to cut spending, not increase it or save rather than spend;
4. the financial system remains plagued by trillions of dollars of bad debt;
5. firms will continue to have little reason to invest or hire;
6. unprecedented government debt will eventually drive up interest rates;
7. central banks do not appear to have an "exit strategy from huge increases in the money supply;
8. emerging-market economies face unprecedented risk despite massive support; and
9. countries with huge current account surpluses face precipitous drops in demand.

For me, reading Roubini's piece along with that of Feldstein described earlier today suggests first that the massive stimulus, particularly by the U.S. government, may not be enough to sustain a recovery while at the same time there is not the financial or political capacity to do more. Clearly the second half of this year will be crucial.