Wednesday, October 19, 2011

We are also running out of policy bullets

Nouriel Roubini : our assessment is that there is more than a fifty percent probability of a double dip recession (in the US ) certain to become a severe recession if the Eurozone blows up , but we think that the tail risks are not going away because of thata there is an option value of waiting , firms doing less job hiring consumers more cautious investors more cautious we see a negative feedback between the real economy disappointing equity markets correction financial condition tightening and negative feedback to the real economy the data is mixed the eurozone is in trouble the consumers are just propped by transfers and taxes but that's going to go away , stocks prices are falling home prices are still falling credit spreads are widening so it is tight for the US consumer , we have this redistribution of income from labor to capital from households to corporates from wages to profits that redistribution of capital means less aggregate demand when there is excess of supply and finally we are running out of policy bullets there will be a fiscal drag monetary policy in QEs becoming increasingly impotent as the credit channels not working we cannot backstop anymore , the banks are now the protestors are saying enough enough of doing that and we need a weaker dollar to grow our exports if domestic demand is weak through deliveraging but the Europeans need a weak Euro the Japanese need a weak Yen..- in Reuters 18 Oct 2011

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