Nouriel Roubini, the New York University professor who predicted the financial crisis, said the chance of a double-dip recession was increasing because of risks related to ending global monetary and fiscal stimulation.
The global economy will bottom out in the second half of this year, Roubini wrote in a Financial Times commentary yesterday. The recession in the US, the UK and some European countries will not be “formally over” before the end of the year, while the recovery has started in nations such as China, France, Germany, Australia and Japan, he said.
Governments around the world have pledged about US$2 trillion in stimulus measures amid the worst worldwide recession since the Great Depression. US Federal Reserve Chairman Ben Bernanke and other global policymakers have cautioned that the recovery is likely to be muted, indicating they would not soon remove all the stimulus injected into the financial system.
“There are risks associated with exit strategies from the massive monetary and fiscal easing,” Roubini wrote. “Policymakers are damned if they do and damned if they don’t.”
Government and central bank officials may undermine the recovery and tip their economies back into “stagdeflation” if they raise taxes, cut spending and mop up excess liquidity in their systems to reduce fiscal deficits, Roubini said. He defined “stagdeflation” as recession and deflation.
Those who maintain large budget deficits will be punished by bond market vigilantes, as inflationary expectations and yields on long-term government bonds rise and borrowing costs climb sharply, he wrote. That will in turn lead to stagflation, Roubini said.
European Central Bank (ECB) officials led by President Jean-Claude Trichet are suggesting they won’t rush to reverse their emergency stimulus amid mounting evidence of an economic recovery.
The ECB has cut its benchmark interest rate to a record 1 percent and is buying covered bonds and flooding banks with money.
“We see some signs confirming that the real economy is starting to get out of the period of freefall,” Trichet said at the Fed’s annual symposium in Jackson Hole, Wyoming, on Aug. 22.
This “does not mean at all that we do not have a very bumpy road ahead of us,” he said.
When needed, the ECB will implement a “credible exit strategy” from its crisis policies, Trichet said.
Meanwhile, the US must address the massive amounts of “monetary medicine” that have been pumped into the financial system and now pose threats to the economy and the dollar, billionaire Warren Buffett said last week.
Roubini currently expects a U-shaped recovery, where growth will be “anemic and below trend for at least a couple of years,” he said.
A full global recovery from the current recession may take two years or more, Nobel laureate Paul Krugman said earlier this month.
Rising unemployment, a global financial system that is still “severely damaged” and weak corporate profitability are among reasons why any recovery won’t be V-shaped, Roubini said.
“Strains persist in many financial markets across the globe,” Bernanke said in an Aug. 21 speech in Jackson Hole. “The economic recovery is likely to be relatively slow at first, with unemployment declining only gradually from high levels.”
Energy and food prices are also rising faster than warranted by economic fundamentals, which may also increase the risk of a double-dip recession, Roubini wrote, adding that they could be driven by speculative trades.
“Last year, oil at US$145 a barrel was a tipping point for the global economy as it created negative terms of trade and a disposable income shock for oil-importing economies,” he said. “The global economy could not withstand another contractionary shock if similar speculation drives oil rapidly toward US$100 a barrel.”
‘NO EQUILIBRIUM’: Taiwan’s increased defense spending is a good step, but it needs to do more to have the ability to deter aggression from China, a senior US official said The US plans to sell as many as seven major weapons systems — including mines, cruise missiles and drones — to Taiwan, four people familiar with the discussions said. Pursuing seven sales at once is a rare departure from years of precedent in which US military sales to Taiwan were spaced out and carefully calibrated to minimize tensions with Beijing. However, US President Donald Trump’s administration has this year become more aggressive with China, and the sales would land as relations between Beijing and Washington are at their lowest point in decades over accusations of spying, lingering trade tensions, disputes about the
CLOSE ENCOUNTERS: Several of the PLA fighter jets that crossed the median line of the Strait came within 68km of Hsinchu, drawing warnings from Taiwan, the ministry said At least 18 Chinese military aircraft yesterday flew into the nation’s air defense identification zone (ADIZ) on the second day of a US delegation’s visit, the Ministry of National Defense said, adding that the military responded by deploying an air defense missile system to monitor their activities. A delegation led by US Undersecretary of State for Economic Growth, Energy and the Environment Keith Krach on Thursday started a three-day visit to Taiwan. The ministry from Thursday started publicizing the actions of the Chinese People’s Liberation Army (PLA) in Taiwan’s ADIZ on its Web site and Twitter. According to ministry reports, 18 PLA aircraft
ON THEIR OWN: The KMT has decided not to participate as a party at this year’s forum, and if any members do go, they would not be representing the party, Alicia Wang said The Chinese Nationalist Party (KMT) yesterday announced that it would not send a delegation “as a political party” to this year’s Straits Forum, after a Chinese TV program described the planned visit to the annual meeting as “suing for peace.” The 12th forum is scheduled to open in Xiamen, China, on Saturday. On Tuesday last week, the KMT announced that former legislative speaker Wang Jin-pyng (王金平) would lead the party’s delegation to the forum, with KMT Secretary-General Lee Chien-lung (李乾龍) as deputy head. However, on Thursday last week, China Central Television’s (CCTV) Yangshipin (央視頻) program, hosted by Li Hong (李紅), included a headline
WORKING OVERTIME? NTU professor Lee Duu-jong denied that he had held a part-time position at a Chinese university or joined China’s Thousand Talents Program A candidate for the post of National Taiwan University of Science and Technology (NTUST) president yesterday dropped out of the race following a report questioning his links to Chinese academia and government programs. Lee Duu-jong (李篤中), a professor at National Taiwan University’s (NTU) chemical engineering department, was a member of China’s Changjiang Scholars’ Program in 2006 and was on the list of its Thousand Talents Program in 2017, a report by Chinese-language Mirror Media magazine said yesterday. The article said that Lee is suspected of having held a part-time job at the Harbin Institute of Technology in China and was the recipient