US could suffer massive recession

by Richard Kilner

Story link: US could suffer massive recession

The US could see a major recession, according to analyst Nouriel Roubini, of the Stern School of Business of New York University.

There is now a consensus that the US will see a slowdown and probably a recession in the near future, but Roubini predicted this as far back as mid-2006, when his position was in the clear minority.

Worryingly, Roubini now forecasts that the chances of a disastrous sequence of events with dire economic and financial consequences are rising.

Between four and six trillion dollars would be slashed from household wealth if prices crash by 20-30% as he predicts.

This would worsen the already substantial writedowns from the subprime mortgage crisis and trigger defaulting on unsecured personal debt, the downgrading of monoline insurers and possibly the bankruptcy of a major financial institution.

Stock markets would crash and liquidity tightened enormously, leading to a vicious circle of restricted credit and closing companies.

According to Roubini’s predictions, over one trillion dollars would be lost in the financial sector alone.

In addition, he believes that the Federal Reserve, which recently slashes interest rates, will be unable to head off the danger.

It must be stressed that Roubini’s nightmare vision of the future is perhaps the very worst case scenario. However, he was ahead of the game in July 2006 when the majority disagreed with his belief in a US recession.