Roubini on CNBC’s The Kudlow Report: Is the Recession Heading for a Double-Dip?

Roubini on CNBC’s The Kudlow Report: Is the Recession Heading for a Double-Dip? CNBC: The Kudlow Report — Crisis Economics: Discussing whether the recession is headed for a double-dip, with Nouriel Roubini, Roubini Global Economics chairman.  (Click for Video [6:48])
 Europe’s recovery falters -The euro zone’s economic recovery is faltering, and the muted inflation outlook should allow the European Central Bank to keep interest rates very low into next year. Released Monday, the Conference Board’s Leading Economic Index for the euro zone dropped 0.5% to 109.7 in May, the first fall for 14 months. The index is an amalgam of eight indicators of activity and is designed to predict future activity.  Jean-Claude Manini, the Conference Board’s senior economist for Europe, said the drop suggested the rebound in euro-zone growth may have peaked during the second quarter.


EIA: The China Syndrome – Oil demand does not grow linearly with GDP. Rather, the bulk of oil demand growth occurs in the two decades during which societies typically acquire motor vehicles, after which per capita oil demand flattens. For example, per capita oil consumption in the United States is today lower than it was in 1979, even though per capita income has increased substantially since.  Demand levels attained in emerging economies are relatively comparable regionally. For example, per capita consumption in both Korea and Japan peaked at 1.9 U.S. gallons per day. Korean levels are unchanged; Japanese consumption has declined to 1.4 U.S. gal per person in the last decade. Both Japan and Korea are effectively islands (Korea due to its closed northern border), and both are densely populated, mountainous Asian countries.As a result, Japan and Korea’s per capita oil consumption is comparatively low next to that of countries with large land masses like the United States, Canada and Australia. China has a land mass equal to that of the United States.

House Passes Homebuyer Tax Credit Closing Extension – From Reuters: U.S. House backs homebuyer tax credit extension This is bad policy … and the Senate will probably pass it tomorrow.

Deficit Reduction Or More Stimulus? – I have been asked a lot recently by Wall Street economists about where Washington fiscal policy is headed.  In short, I don’t expect much change.  We’ll stay stuck at around $1 trillion of annual deficits in FY10, FY11, and probably FY12.  I say that because Congress has so far been unable to pass the extenders bill without fully paying for it.  Although I expect unemployment insurance, another federal contribution to state Medicaid, and expiring tax provisions to pass eventually, it has taken far longer than I expected.  Similarly, large deficit reduction is off the table as evidenced by Congress’ failure to pass a budget resolution with the reconciliation instructions necessary to take a bite out of the deficit.  If the Republicans take the House in November and gain 5 or 6 seats in the Senate, Congress will be even more polarized next year.  I see offsetting demands for spending cuts and tax cuts that leave the deficit essentially unchanged.  

Short-sale datapoint of the day – How long does it take to complete a short sale? If you have a prime loan from GMAC, it takes a full six months: painful. But what’s much worse is that GMAC is by far the fastest mortgage servicer of the lot: prime loans from Countrywide take, on average, 13 months. Subprime loans from Morgan Stanley’s Saxon unit are even worse, at 17 months. And then there’s the subprime loans from Equicredit and Ocwen, which take a mind-boggling 29 months to go through, on average.Jorge Newberry has some common-sense ideas about how to speed things up a bit, but the fact is that these servicers have demonstrated their inability to do their jobs multiple times over the past few years: they’re simply overloaded. Too few staff, with too few qualifications, are trying to do too many things at once.The result is predictably depressing: more foreclosures, less money for servicers, more distressed sales, more empty homes, lower house prices. Treasury has done nothing to alter this situation to date, and neither has Congress. So expect more of the same going forward, for years and years to come.

American Austerity -Today’s New York Times article on the Irish economy makes for depressing reading.  Despite swift moves for wage cuts and other austerity measures (backed by the unions, no less), the deficit is almost 15% of GDP, and the spread between Irish and German debt is about 300 basis points.  Unemployment is high, and long-term unemployment makes up a significant portion of the problem. Given all that, Kevin Drum asks In the case of Ireland, it’s not clear if they had a lot of choice. They’re a eurozone country, so they couldn’t devalue their currency, and they’re running monster deficits even with the cutbacks they’ve made. Bigger deficits might simply not have been possible for a country their size.Still, the results are pretty obviously horrific, and any country that can avoid Ireland’s fate surely ought to. We certainly can, for example. So why do so many people want us to follow the Irish path instead?

Euro Area Unemployment -The above graph shows the unemployment rate in the same set of Euro area countries as the last post, using the same color key.  The 2010 data are all IMF estimates made in April, as are the 2009 data for Belgium and Greece.  All other data are actuals.

IMF tells US to tighten fiscal policy – The US will have much less room to grow than it believes and should therefore tighten fiscal policy more rapidly, according to estimates by the International Monetary Fund. In the first report of the G20’s “mutual assessment process”, by which leading economies are supposed to hold each other accountable for growth, the IMF suggests that the “advanced deficit countries” – dominated by the US – should tighten fiscal policy more rapidly than planned. “Major fiscal consolidation is needed in the years ahead in G20 economies with high public deficits and debt,” the IMF said. The fund said it believed permanent harm had been done to the US economy by the financial crisis and recession, which puts it at odds with the official US view. The IMF calculates that potential output in 2013 is nearly 2 percentage points below the US estimate, suggesting less room to grow quickly. Under that more pessimistic estimate, continued fiscal stimulus would be more likely to push up interest rates and crowd out private sector growth

US House Backs Homebuyer Tax Credit ExtensionThe U.S. House of Representatives Tuesday approved giving extra time to homebuyers trying to get a popular federal tax credit by the end of the month. The House backed by a vote of 409-5 a measure to extend the closing deadline to Sept. 30 for buyers who met the April 30 deadline to have a signed contract. The current deadline requires those buyers to close the transaction by June 30 to receive the $8,000 tax credit for first-time homebuyers. The Senate must still approve the measure before President Barack Obama can sign it into law.

Scott Brown Cannot In Good Conscience Support This Bill With The New Stuff Slipped InBloomberg reports Brown sent a letter to Dodd and Frank stating: “This tax was not in the Senate version of the bill which I supported. If the final version of the bill contains these higher taxes I will not support it.”

 For rent in China: White people (CNN vdieo)For a day, a weekend, a week, up to even a month or two, Chinese companies are willing to pay high prices for fair-faced foreigners to join them as fake employees or business partners.Some call it "White Guy Window Dressing." To others, it’s known as the "White Guy in a Tie" events, "The Token White Guy Gig," or, simply, a "Face Job."And it is, essentially, all about the age-old Chinese concept of face. To have a few foreigners hanging around means a company has prestige, money and the increasingly crucial connections — real or not — to businesses abroad."Face, we say in China, is more important than life itself," said Zhang Haihua, author of "Think Like Chinese." "Because Western countries are so developed, people think they are more well off, so people think that if a company can hire foreigners, it must have a lot of money and have very important connections overseas. So when they really want to impress someone, they may roll out a foreigner."Or rent one.

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