Roubini: Those Are Yellow Weeds, Not Green Shoots

Roubini: Those Are Yellow Weeds, Not Green Shoots
June 9, 2009, 9:40 AM ET
By WSJ Staff

The still-pessimistic Nouriel Roubini offers *nine* reasons for pessimism:

* First, employment is still falling sharply in the U.S. and other economies. This will be bad news for consumption and the size of bank losses.

* Second, this is a crisis of solvency, not just liquidity, but true deleveraging has not really started, because private losses and debts of households, financial institutions, and even corporations are not being reduced, but rather socialized and put on government balance sheets. Lack of deleveraging will limit the ability of banks to lend, households to spend, and firms to invest.

* Third, in countries running current-account deficits, consumers need to cut spending and save much more for many years. Shopped out, savings-less, and debt-burdened consumers have been hit by a wealth shock (falling home prices and stock markets), rising debt-service ratios, and falling incomes and employment.

* Fourth, the financial system — despite the policy backstop — is severely damaged. So the credit crunch will not ease quickly.

* Fifth, weak profitability, owing to high debts and default risk, low economic — and thus revenue — growth, and persistent deflationary pressure on companies’ margins, will continue to constrain firms’ willingness to produce, hire workers, and invest.

More…http://blogs.wsj.com/economics/2009/06/09/roubini-those-are-yellow-weeds-not-green-shoots/