Dr. Doom Forsees a 2012 Recession


Noted professor of economics, Nouriel Roubini, predicts the U.S. economy will slide into recession in 2012 primarily because of the failure to deal with fiscal problems as a result of political gridlock in Washington. Last week, Roubini tweeted: “Super-Committee: Super-Failure, Super-Pathetic, Super-Gridlock, Super-GOP-Lunacy on Taxes, Super-Fiscal Drag in 2012 that ensures double dip.”

The bipartisan 12-member “super committee” failed to complete its mission of agreeing upon $1.2 trillion in cuts over the next 10 years. Consequently, automatic spending cuts will be triggered across the board, but some believe even those cuts will be jettisoned.

Roubini agrees that the failure was bi-partisan, but says that Republicans are more to blame for their unwillingness to compromise on taxes, which are at the lowest levels in 60 years.

If Congress cannot come together, Roubini predicts the “fiscal drag will be $350 billion, 2.3% of GDP” in 2012. Even if there is an agreement, the fiscal drag for next year will amount to $200 billion, or 1.3% of GDP, he said. “If the economy is growing only 1.5%-2% and you get a fiscal drag of 1.3% — that’s the difference between a growth recession and effectively zero growth.”

Also, the European sovereign debt crisis is getting worse by day. If it continues to spread, Roubini expects the shock to global economies and markets to be “worse than the disorderly collapse of Lehman in the fall of 2008.”