Has Nouriel Roubini got it right about the recession?

Professor Nouriel Roubini has become justly famous for spotting the US housing bubble over three years ago and warning of the coming recession long before it happened.

Now he sees a recession that started in December 2007 dragging on through this year and not ending until the close of 2010. If pushed to be more pessimistic he even sees it continuing beyond 2010.

Down, deeper and down

It is hard to be very optimistic about the outlook for the global economy as a barrage of statistics confirm the worst downturn since the Great Depression. GM car sales fell 53 per cent last month, and the 20-50 per cent falls in global trade statistics are particularly alarming.

If you have fallen off a cliff you first need to hit the bottom before you can even think about climbing out, assuming that you manage to reach the bottom in one piece.

That is surely the main concern. We can see the damage to global trade and business sales. But this is a downward spiral as new orders are being hit by declining business sales, and this bodes very badly for the future.

In a sense this must be the reverse of the upwards only leveraging process of the past few years when firms and individuals borrowed more and more money pushing prices and trading volumes ever higher. That process took years from the last major recessionary phases of the early 1990s in the West and Asian Financial Crisis of the late 90s in the East. We can not expect its reversal to be quick.

Reality or gloom?

So is Professor Roubini perhaps now too optimistic in his gloom and doom? He does have to sleep at night and will be concerned about the old mantra of ‘beware of what you wish for, for it will surely happen’.

On the other hand, Dr Doom as he has become known is not one to hold back for long on an inconvenient truth. He is arguing for bank nationalization in the US rather than wasting more money on the increasingly discredited bailouts.

Certainly investors buying into markets now are at risk from further market falls, and the old expressions that comes to mind is ‘fools rush in where angels fear to tread’ and ‘a fool and his money are easily parted’!