Hustle and bustle at the shops, restaurants and cafes in Milpitas this summer is by no means an indicator that the American economy is on the mend — at least, if economist Nouriel Roubini, aka Dr. Doom, is to be believed.
And there is one good reason to believe Roubini: he accurately predicted the 2008 economic crisis — all the way back in 2006. At the time, the analysis was generally laughed off, The New York Times described, and Roubini became known as what economists call a “permabear" — a "permanent" believer in a "bear" stock market, defined by investor fear and pessimism.
Now, the NYU professor is bursting what he sees as an over-inflated bubble of optimism once again and claiming that the American economic recovery "will remain, at best, below-trend for many years to come."
In an op-ed published on the Project Syndicate website, titled "American Pie in the Sky," "Dr. Doom" says that economic growth will continue to slow in the second half of 2012, and that 2013 threatens to bring the economy to an almost grinding halt.
A few factors will contribute to continued slow-down in growth and spending, says Roubini, including:
- Automatic tax increases and spending cuts set for the end of 2012
- Uncertainty about who will be president in 2013
- Uncertainty about tax rates and spending levels
- The threat of another government shutdown over the debt ceiling
- The risk of another credit rating downgrade resulting from political gridlock
"In such conditions," predicts Roubini, "most firms and consumers will be cautious about spending – an option value of waiting – thus further weakening the economy."
Roubini also cites problems caused by the inconsistency between private sector growth and wages, as well as "external forces" such as the deepening eurozone crisis, the slowdown of emerging economies and the risk of higher oil prices.
"Dr. Doom," of course, should not be confused with Victor von Doom, an archenemy in the Marvel comic book universe.
What are your predictions for the economy in 2013? Do you agree with Dr. Doom? How is the local economy in our town faring, in your opinion?
Share your thoughts in the comments.