Roubini: Add U.S. to List of Doomed Economies

Nouriel Roubini picked the website “Project Syndicate: A World of Ideas” as the forum for his latest pessimistic comments about economies around the world. In this new case, the United States was his target:

Even this year, the consensus got it wrong, expecting a recovery to above-trend annual GDP growth — faster than 3%. But the first-half growth rate looks set to come in closer to 1.5% at best, even below 2011’s dismal 1.7%. And now, after getting the first half of 2012 wrong, many are repeating the fairy tale that a combination of lower oil prices, rising auto sales, recovering house prices, and a resurgence of US manufacturing will boost growth in the second half of the year and fuel above-potential growth by 2013.

The reality is the opposite: for several reasons, growth will slow further in the second half of 2012 and be even lower in 2013 — close to stall speed. First, growth in the second quarter has decelerated from a mediocre 1.8% in January-March, as job creation — averaging 70,000 a month — fell sharply.

Roubini makes a fair case, given the mixture of slow second-quarter growth in the U.S., the “fiscal cliff,” slower consumer spending, and the slowdown of economies in Europe. The effect:

And if the US (still the world’s largest economy) starts to sneeze again, the rest of the world — its immunity already weakened by Europe’s malaise and emerging countries’ slowdown — will catch pneumonia.

At least the famous economist has admitted that China is not the center of the world’s economy, nor is Europe. The United States, which staged a year-long GDP and employment comeback that ended earlier this year, remains the cornerstone of global GDP.

Roubini’s comments will have no impact on the deliberations about stimulus vs. austerity in Washington. But they should. The American economy has become part of a vicious circle. Without its health, the balance of the world suffers significantly financially. Then the slowdown comes back around to the U.S. as exports falter with a drop in consumer and business demand overseas.

Washington has its eye on the U.S. deficit and decisions about taxes. Congress and the Administration ought to look at how tightly America’s economy is tethered to the rest of the world.

Douglas A. McIntyre