Nouriel Roubini: "stimulus from U.S. government spending will be puny this year"

[Better Believe It]

The Rising Risks of a Global L-Shaped Near Depression and Stag-Deflation
"to prevent such a financial and economic disaster the time to forcefully act is now"
Nouriel Roubini
March 2, 2009

Of the $800 billion of the US fiscal stimulus only $200 billion will be spent in 2009 with most of it being back-loaded to 2010 and later. And of this $200 half is tax cuts that will be mostly saved rather than spent as households are worried about jobs and about paying their credit card and mortgage bills (of last year’s $100 billion tax cut only 30% was spent and the rest saved). Thus, given the collapse of five out of six components of aggregate demand (consumption, residential investment, capex spending of the corporate sector, business inventories and exports) the stimulus from government spending will be puny this year.

This is indeed the worst financial crisis and economic crisis since the Great Depression and, unless policy makers all over the world start waking up rather than being asleep at the weel and start to implement Powell-style overwhelming policy force we may end-up with a multi-year near depression or stag-deflation as we have not seen since the Great Depression. This aggressive and front-loaded and pre-emptive policy response needs to include:

· massive and more unorthodox monetary policy easing to defrost credit markets even if this may imply central banks widening collateral and taking greater credit risk;

· massive and front-loaded fiscal stimulus more on the spending than tax side and with income relief to agents with high marginal propensity to spend (poor, unemployed, state/local governments);

· rapid takeover of insolvent banks – full nationalization - and their quick clean-up and re-privatization;

· aggressive credit growth incentive for banks and financial institutions to stop the collective action coordination problem leading them to contract credit to even creditworthy households and firms;

· use of proper and constructive credit forbearance (on capital adequacy ratios, on mark-to-market marks, on rating agencies destructive lagged downgrades);

· Across the board reduction of the face/principal value of mortgage debt and other consumer debt for insolvent households as a case-by-case debt re-stretching of debt will not work;

· Immediate doubling of the IMF resources and provision of loans/liquidity to emerging markets under liquidity and financial stress (with conditionality for those economies with severe macro/financial/policy weaknesses; with very light conditionality for the emerging markets with sounder fundamentals).

Thus, to prevent such a financial and economic disaster the time to forcefully act is now; policy makers in Europe, Japan, other economies and even in the US and China are falling behind the curve and time is not running in their favor. The current delayed reaction to worsening financial and economic conditions rather than pre-emptive forceful action to prevent such conditions from materializing would ensure that the bad equilibrium of a global near depression will occur.

Please read the complete article at:

http://www.rgemonitor.com/roubini-monitor/255816/the_rising_risks_of_a_global_l-shaped_near_depression_and_stag-deflation

[Bolo Boffin]

1. It's amazing to say that trillions of dollars of spending is not aggressive enough

but Roubini knows whereof he speaks. Hold onto your butts.

[leftchick]

4. I think it is more of where it is spent

to just keep doling out more cash to these criminals is the bush/raygun way. We have got to nationalize the zombie bans now!

[Bolo Boffin]

9. Yes, that's right.

It's a stunning statement to make, even more so because I think he's correct.

[debbierlus]

12. The economy is crashing hard NOW.

Nationalize the banks and stop throwing money at the fucking corrupt lenders who fucking created this disaster.

[Better Believe It]

13. He actually said not enough money is being spent for stimulus job creation and

called 100 million to be spent this year for public works puny.

He's right.

And check out his list of things that need to be done to prevent a full scale economic depression.

[Bolo Boffin]

17. Yes, he's right.

I like Roubini.

[FrenchieCat]

2. Is he counting the budget dollars?

cause he might should. :shrug:

[leftchick]

3. the fact that no one in this administration listens

to he and Krugman tells me all I need to know. We are fucked.

[Better Believe It]

5. Nouriel Roubini: Obama's Foreclosure Plan Too Timid, More Stimulus Spending May Be Needed

One on One with Nouriel Roubini, Economics Professor at NYU's Stern School of Business
October 28, 2008


SUSIE GHARIB: My first question: will President Obama's mortgage recovery plan slow down foreclosures and help the economy?

NOURIEL ROUBINI, PROF. OF ECONOMICS, NYU STERN SCHOOL OF BUSINESS: Reducing monthly payment is positive, but you need a reduction in the face value of the mortgages -- significant, 20, 30, 40 percent depending on the household. So in my view this plan is too timid. It's going in the right direction but it's going to take years until we have (INAUDIBLE) on millions of these household debt and it's going to be too little too late and therefore it seems that (INAUDIBLE) housing is going to be relatively weak.

GHARIB: Professor Roubini, when you look at President Obama's overall economic stimulus plan, will it work?

ROUBINI: The headline is $800 billion but only $200 billion that's going to be spent this year. The .... tax rebate in my view is not going to be spent. Last year we had a tax rebate only $0.30 on the dollar were spent. The rest of it was saved because people are so worried about jobs, about running down their credit and mortgage debt, they're not spending it. So the tax part of it in my view is a waste of money. And a lot of the infrastructure spending is not going to be ready to be spent right away. There are very few projects that are shovel ready. Many of them take years to implement. So my concern is that while the headline number looks big, the actual size of spending this year might be small compared to what is necessary to get us out of this very severe economic contraction.

GHARIB: One of the big selling points of the stimulus plan is that it's going to create millions of jobs. If that is the case, how soon do you see the unemployment rate dropping?

ROUBINI: No one is really expecting that the unemployment rate is going to start to shrink any time soon. It's going to keep on rising I believe to 9 percent easier, probably as high as 10 percent next year. All the stimulus plan can do is to slow down the rate at which job losses occurring, not to reverse it for the time being.

GHARIB: So are you saying that despite all these economic recovery plans that this recession could turn into a depression?

ROUBINI: It's a possibility. It's a low probability. If we do everything right on the (INAUDIBLE) on the fiscal on the bank and the debt problem we avoid a near depression like the Japanese (INAUDIBLE). If we make mistakes in the U.S. and other countries, many other countries are behind the curve in the policy response, I would not rule out there is an L-shaped Japanese kind of style near depression. That's a possibility.

Please read the complete interview at:

http://www.rgemonitor.com/roubini-monitor/255655/latest...

or at:

http://www.pbs.org/nbr/site/onair/gharib/081028_gharib /

[DemocracyInaction]

6. Here's what's putting my mind in a tizzy

Every "expert" I've listened to/read and even the GOP shills on CNBC keep screaming that we have not spent enough in bailout money, or stimulus package, etc. but we need to, literally, get into "trillions" to do the job. Then the same assholes five minutes later (and their GOP numbnuts)scream about the burden on taxpayers and how this is just awful and Obama should be driven out of office! Soooooo, exactly where do they want these trillions to come from (and it sure as hell isn't from taxing the rich which they also think is the end of the world). Bottom line: what the fuck is with these mixed messages??!!! It's like they want chaos just for the sake of chaos.

[EraOfResponsibility]

8. Exactly. I'm sick of those bipolar sons of bitches

all of 'em, on the left and the right.

[Bolo Boffin]

10. That's the smell of moral hazard in the water

and the sharks are in a frenzy.

[Better Believe It]

7. Moody's Chief Economist says Congress may be forced to undertake another stimulus plan

Trim to Stimulus Carves Into Goals For Job Creation
By Lori Montgomery
Washington Post
February 13, 2009

.... congressional negotiators have since trimmed billions of dollars from the package to satisfy Senate Republicans, diminishing its potential for job creation along with its overall cost. With the House poised to vote as early as today on the measure, analysts are slashing their estimates of its ability to counteract a deepening recession, with several prominent economists now saying the package will save or create fewer than 2.5 million jobs by the end of next year.

At $789 billion, the final package "is just not going to pack the same jobs punch" as some earlier versions, which cost as much as $100 billion more, said Mark Zandi, chief economist of Moody's Economy.com, whose analysis have been cited by White House officials as well as congressional Democrats. Zandi estimates the measure will create only about 2.2 million jobs by the end of 2010, leaving unemployment hovering around 10 percent and probably forcing lawmakers to undertake another stimulus plan.

Many analysts had been more optimistic about the House version of the stimulus bill. At $820 billion, it was not much bigger than the final package agreed to Wednesday by a House-Senate conference committee. But the House version contained about $50 billion more in direct government spending -- such as payments to state governments and cash for school construction -- which economists say is spent quickly and ripples broadly through the economy. The final package, by contrast, is weighted more heavily toward tax cuts, which have a less powerful effect, according to many economists, because taxpayers tend to save a portion of the money.

Because the AMT (Alternative Minimum Tax) fix was built into many economic models, its presence in the package amounts to "phantom stimulus," said Nigel Gault, chief U.S. economist at Global Insight, a private forecasting firm. In part because of the AMT provision, Gault said his models show the $838 billion Senate bill would only have created about 2.5 million jobs. Because the final package is even smaller, he said, "our number would come down a little bit."

Another prominent forecasting firm, St. Louis-based Macroeconomic Advisers, this week cut its estimate for the House bill to 2.3 million from 3.3 million jobs after the CBO reported that only about two-thirds of the money could be spent by the end of next year.

Please read the complete article at:

http://www.washingtonpost.com/wp-dyn/content/article/20 ...

I don't especially like Gergen but he's right on this.

David Gergen
AC360° Contributor
CNN Senior Political Analyst
February 17, 2009

In winning passage of the stimulus package, the President managed his way successfully through his first storm but he and his team recognize there are darker, more treacherous ones ahead. The economy has been deteriorating at such an accelerating rate in recent months that the administration had to expand the size of the stimulus package far beyond what they originally envisioned. If the economy continues to sink - and signs around the globe point in that direction - even this package will not be big enough. And economists of almost every stripe complain that its impact was weakened during the political wrangling.


For now, administration insiders believe that the package will begin to help quickly in saving jobs that might have been lost (e.g., with infusions of fresh money, state governments will not have to fire as many people). But insiders are not really expecting the stimulus to start creating many new jobs — or at least those that will show up in statistics - until early next year. Moreover, they recognize that they may have to come back for additional installments of stimulus in the months ahead. No future package should be as large, but there is likely to be a clear need to expand unemployment benefits again. So, look for more stimulus down the road - we just don’t know how much.

http://ac360.blogs.cnn.com/2009/02/17/obama-faces-growi ...

[Better Believe It]

11. These 2 stimulus plans would create around 2 million useful jobs for about 250 billion dollars

The first is: "America's Mayors Report to the Nation on Projects to Strengthen Metro Economies and Create Jobs Now".

This "Ready to Go" Public Works Plan Will Cost 149 Billion And Create 1.6 Million useful public works Jobs in just 2 Years

The Republican and Democratic mayors released a report on January 17, 2009. It lists 18,750 local infrastructure projects in 779 cities costing 149 billion dollars that will create 1.6 million jobs. All of these projects can be quickly started and be completed by the end of 2010!

Find out exactly what "shovel ready" stimulus projects are ready to be built in your city, how many jobs would be created and how much they would cost under this plan.

It's in PDF format.

Go here:

http://www.usmayors.org/mainstreeteconomicrecovery /

And click on:

Option 1: Download a PDF version of the full report, including the executive summary, list of participating cities and then projects, sorted by project type or by city.
+ Click to download the report (5 MB)

----------------------------------

The second plan Is: "The American Institute of Architects Plan For Restoring Our Economy and Greening Our Communities"

As the global financial crisis continues to threaten the livelihood of American businesses and workers, the American Institute of Architects (AIA) strongly urges Congress to support policies that will stimulate and restore confidence in the U.S. economy.

Rebuild & Renew: The AIA Plan
America’s architects believe that this economic crisis presents an opportunity not only to build, but to build better.

Read the Complete AIA Plan at this link:

http://www.aia.org/aiaucmp/groups/aia/documents/pdf/aia ...

[truedelphi]

14. This why one of the best things that Obama could have done was also the simplest

Just figure out how much money we could afford to spend and send it diretly to the states.

Make it on a per capita basis - so of course California would get more than South or North Dakota.

Put a provision into the Bill stating that the states who are in deficit standing had to use it to shore up the programs that are being cut back.

Three results from this:
1) the money would be spent immediately because the states are already going ahead with the programs designed last year for this year
2) the states would be better at spending the money. If I buy fourteen thousand notebooks for school kids at the federal level, it might end up costing $ 15 to $ 150 a notebook. But if it is done at the state level, the notebooks will be one third to one fifth, and sometimes one tenth, of what it will cost.
3) It would be more democratic. i am all for our infrastructure - but how many pink-slipped, forty five year old teachers are gonna get behind a jackhammer in 2010 and earn their living? Far better to keep people employed by the states.
And to keep their employment this year continued.

[Teaser]

15. We'll get plenty more stimulus type bills in the next few months

count on it.

[Better Believe It]

16. They will only be passed if Senate rules are changed to end filibusters

Senate rules can easily be changed so that only 50 votes (plus Vice-President tie breaker) are required to pass legislation.

The other option is for Senate Democrats to allow Republicans to engage in a real on-the-floor filibuster until such time as 60 votes for cloture can be obtained, be it a day, a week or a month.

Senator Reid and company will probably do neither of the above. That means any Obama legislative proposals will either be withdrawn by the Senate leadership in response to a real or threatened Republican filibuster or be weakened to the point of uselessness in an effort to "win" the votes of a few Republican moderates in the Senate.

Look at how Senator Reid trashed an effective job creating stimulus bill with help from three Republican Senators.

If the leadership of the Democratic Party fails to challenged and defeat any filibuster attempts by Republicans, the Obama administration will be unable to accomplish any of its economic objectives. The nation will quickly slide into a long and deep depression. An even more right-wing Republican Party will easily regain control of the House, Senate and the White House in 2012.