Roubini: Without stimulus, another Great Depression

The slowdown in the world economy has accelerated the timing and likelihood of a new global financial crisis, gloom-and-doom economist Nouriel Roubini said last week. “I thought a few months ago that the perfect storm would be 2013, but now, the economic weakness in the U.S., eurozone and U.K. is front-loaded,” he said. “So we're going to double-dip earlier. The climax of it could be 2013 or it could be already earlier,” said Mr. Roubini, co-founder and chairman of Roubini Global Economics LLC, and a professor of economics at New York University's Leonard N. Stern School of Business. “It depends on what policy tools are available,” he said. With the eurozone in crisis, facing a record-high cost for insuring bank debt, there is a 60% probability that most advanced economies will fall into a recession, Mr. Roubini said. Meanwhile, authorities are running out of options to provide emergency support, Mr. Roubini said. “You need to restore economic growth, not five years from now. You need to restore it today,” he said. “In the short term, we need to do massive stimulus; otherwise, there's going to be another Great Depression,” he said. “Things are getting worse, and the big difference between now and a few years ago is that this time around, we're running out of policy bullets.” Another financial crisis “is already manifesting itself” in developed economies, Mr. Roubini said.

CASH HOLDINGS

He said that if he had large amounts of money to invest, he would “mostly keep it in cash,” especially in dollars, as the U.S. currency tends to strengthen during financial crises. Mr. Roubini also said that he also would favor government bonds of countries with small budget deficits and low public debt, such as Australia and Canada. He would avoid stocks and commodities. “If we see a nasty global recession, then risky assets, starting with equities, are going to hurt, and going to hurt big-time,” he said. Mr. Roubini predicted a bubble in U.S. housing prices before the market peaked in 2006, but his forecasts haven't all been accurate. When the S&P 500 fell to a 12-year low March 9, 2009, he said that it probably would drop to 600 or lower by the end of that year. Instead, the U.S. equity benchmark gained 65% through the rest of 2009.