Friday, July 24, 2009

Roubini Sees Risk of ‘Double Dip’ Global Recession

The global economy may fall back into a recession by late 2010 or 2011 because of rising government debt, higher oil prices and a lack of job growth, said NYU economics professor Nouriel Roubini, according to Bloomberg.

A“perfect storm” of fiscal deficits, rising bond yields, “soaring” oil prices, weak profits and a stagnant labor market could “blow the recovering world economy back into a double-dip recession,” he wrote in a research note today.

Roubini is correct about the double dip, but he is mostly wrong about the reasons.

Rising government debt is a problem. It will sop up money in the economy and crowd out much needed funds for the private sector. Soaring oil prices are generally a symptom of rising inflation. I don't see any major inflation in the short term, if anything the oil price will probably decline on the second dip. A stagnant labor market has little to do with causing a recession, it is a symptom of recessions, except for the unemployment added on by legislation such as higher minimum wage laws.

Double dip recession? Yes.

Roubini's explanation for why it will occur? Not really.

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