Wednesday, July 09, 2008

Roubini on Squawk Box

by Calculated Risk on 7/09/2008 11:32:00 AM

Video: Roubini on CNBC

From Roubini: Interview on CNBC and Rising Estimates of Credit Losses from the Financial Crisis Now Up to $1.6 Trillion

[B]race yourself for a severe recession in the US and other advanced economies, a serious global growth slowdown and a systemic financial crisis. The worst is ahead of us rather than behind us ...

[T]he temporary drug of a $160 billion fiscal package including $100 billion of tax rebates will boost Q2 growth into positive territory (1% to 1.5% growth in Q2). But that boost is deceptive as it is entirely driven by such temporary tax rebates. The effects of those rebates on consumption are temporary while a half a dozen more persistent shock will lead to a consumption reduction – by late summer –once the effect of the rebates fizzle out. Persistent headwinds hitting consumers on a more protracted basis are: falling home prices, falling home equity withdrawal, falling stock prices, rising oil and food prices, rising debt servicing ratios, falling consumer confidence, falling employment and income generation.
BTW, Goldman Sachs had a research note out this week on "The Sorry State of US Consumer Fundamentals".
[W]e [focus] on five key indicators of consumers’ financial well-being: job creation, changes in real wages, changes in home prices, changes in equity prices, and access to credit. Together, these indicators cover major movements in the income statement and balance sheet of the US household sector.
Goldman analysts then present evidence that all five factors are negative for consumer spending.
The bottom line: none does very well; the [household] balance sheet looks especially fragile.