It's bad news, Darling, says Roubini

Just what we need ahead of the Budget - a seriously depressing take on the prospects for the US economy...

Last Updated: 31 Aug 2010

On Radio 4’s Today programme this morning, top US economist Professor Nouriel Roubini told the BBC that the US recession was already well under way, that it will be significantly worse than the last two and that it could result in a ‘catastrophic financial and economic outcome’. Not exactly full of the joys of spring, then…

In fact, says Roubini, the professor of Economics at New York University's Stern School of Business and a former White House macroeconomic advisor, the fall-out is likely to be so bad that financial losses will total at least $1 trillion. He thinks there’s an increasing likelihood that we’ll see a vicious circle, where the recession makes losses worse and this general meltdown makes the recession more severe.

According to Roubini, there are several reasons why it’s all going to be worse this time around. House prices are set to plummet, which means mortgage lenders (and the institutions that bought mortgages from them) will lose some serious money, while US households have been living above their means for so long that there’s too much unsecured debt. Before you know it, he says, you’ve got ‘systematic financial meltdown’. Which sounds scary.

Roubini stopped short of predicting the demise of one of Wall Street's biggest financial institutions, but he does seem to think that it's quite likely to happen.

And these are not just the rantings of an unusually-named economist. Figures last week suggested US unemployment figures had risen for the second month in a row, an indication that recession is already happening.

With Chancellor Alistair Darling due to deliver his first Budget tomorrow, news like this is all he needs. After all, if the US catches a cold the UK generally gets full-blown flu. Of course it’s always possible that he’ll somehow pull a rabbit out of the hat – but on the evidence of his time in office so far, we’re not holding out much hope...

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