No defence left against double-dip recession, says Nouriel Roubini The Telegraph ^ | 9/5/2010 | Ambrose Evans-Pritchard
The United States, Japan and large parts of Europe have exhausted their policy arsenal, leaving them defenceless against a double-dip recession as recovery slows to ‘stall speed’.
“The US has run out of bullets,” said Nouriel Roubini, professor at New York University, and one of a caste of luminaries with grim forecasts at the annual Ambrosetti conference on Lake Como.
“More quantitative easing (bond purchases) by the Federal Reserve is not going to make any difference. Treasury yields are already down to 2.5pc yet credit spreads are widening again. Monetary policy can boost liquidity but it can’t deal with solvency problems,” he told Europe’s policy elite.
Dr Roubini said the US growth rate was likely to fall below 1pc in the second half of the year, despite the biggest stimulus in history: a cut in interest rates from 5pc to zero, a budget deficit of 10pc of GDP, and $3 trillion to shore up the financial system.
The anaemic pace compares with rates of 4pc-6pc at this stage of recovery in normal post-war recoveries.
“We have reached stall speed. Any shock at this point can tip you back into recession. With interbank spreads rising, you can get a vicious circle like 2008-2009,” he said, describing a self-feeding process as the real economy and the credit system hurt each other.
“There is a 40pc chance of double-dip recession in the US, and worse in Japan. Even if it is not technically a recession it will feel like it,” he added.
Hans-Werner Sinn, head of Germany’s IFO Institute, said the US would have to purge its debt excesses the hard way.
“The bitter truth is that there is no way out of this with monetary and fiscal policy. They will just have to see their living standards go down. I see a
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