Your Daily Dose Of Doctor Doom

The Great Roubini warns that we're still in danger of a secondary recession stemming from the global response to the financial crisis.

Nouriel Roubini, the New York University professor who predicted the financial crisis, said the chance of a double-dip recession is increasing because of risks related to ending global monetary and fiscal stimulus.

The global economy will bottom out in the second half of 2009, Roubini wrote in a Financial Times commentary today. The recession in the U.S., the U.K., 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 $2 trillion in stimulus measures amid the worst worldwide recession since the Great Depression. Federal Reserve Chairman Ben S. Bernanke and other global policy makers 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. “Policy makers 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 says. He defines “stagdeflation” as recession and deflation.

Stagdeflation as defined there would be a catastrophe. The GOP plan for the economy would certainly lead to this effect. The question is whether or not Obama will be able to continue spending in order to help things along. The GOP will raise taxes too, they'll just call it something else and kill spending while doing it.

We'll see. Remember, as the real estate market continues to collapse, we're seeing trillions in wealth vanish from the country. That's your major deflationary pressure right now.