The NYT calls Nouriel Roubini "Dr. Doom" – for getting it right:
On Sept. 7, 2006, Nouriel Roubini, an economics professor at New York University, stood before an audience of economists at the International Monetary Fund and announced that a crisis was brewing. In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession. He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt. These developments, he went on, could cripple or destroy hedge funds, investment banks and other major financial institutions like Fannie Mae and Freddie Mac.
“The only way to increase aggregate demand is going to be through” government spending on roads, bridges and other infrastructure, Roubini said at a Bloomberg conference in New York. “We need a huge plan, $300 billion is not going to be enough. I think we’re going to need a plan of $400 billion to $500 billion.”
U.S. Treasury officials and other policy makers are grappling with financial turmoil that has pushed down the Standard & Poor’s 500 Index by 42 percent this year, its worst annual retreat since 1931.
“If we don’t do that fiscal stimulus today, three months from now, six months from now the collapse of the real economy is going to be so severe that anything we’re doing today to recapitalize the financial system is going to be undone,” Roubini said.
“Financial markets are becoming totally unhinged,” he said. “Fundamentals don’t matter, valuation doesn’t matter the only thing that matters right now is flows, and the flows out there are sellers, and no buyers.”
Investors withdrew a record $43 billion from hedge funds last month, according to TrimTabs Investment Research in Sausalito, California. The Goldman Sachs VIP Basket of stocks with the most hedge fund ownership has lost 47 percent this year, more than eight of 10 industries in the S&P 500.
“We’re entering literally a vicious circle where economies are spinning down, financial markets are spinning lower, and the policy makers in my view — and that’s my biggest fear — have lost control of what’s going on in financial markets,” Roubini said.
Today, at 10 am, the Joint Economic Committee will hold a hearing on “Faltering Economic Growth and the Need for Economic Stimulus”
Live coverage at CSPAN.
The JEC hearing entitled, “Faltering Economic Growth and the Need for Economic Stimulus,” will feature economic experts who will examine whether the new data point us towards the need for more economic stimulus and what that stimulus should entail.
- Nouriel Roubini, Professor of Economics and International Business, New York University
- Simon Johnson, Ronald A. Kurtz Professor of Entrepreneurship, Massachusetts Institute of Technology
- J. Steven Landefeld, Director, Bureau of Economic Analysis
- Richard Vedder, Distinguished Professor of Economics, Ohio University, and Visiting Scholar at American Enterprise Institute
- Mr. Vincent DeMarco, President, Maryland Citizen’s Health Initiative
- Mr. Donald C. Fry, President, Greater Baltimore Committee
- Mr. Joseph Haskins, Jr., Chairman, President and Chief Executive, The Harbor Bank of Maryland
x-posted at oxdown