Roubini: US Will Suffer Worst Recession in 40 Years

Oct. 14 (Bloomberg) — Nouriel Roubini, the professor who predicted the financial crisis in 2006, said the U.S. will suffer its worst recession in 40 years, driving the stock market lower after it rallied the most in seven decades yesterday.

“There are significant downside risks still to the market and the economy,” Roubini, 50, a New York University professor of economics, said in an interview with Bloomberg Television. “We’re going to be surprised by the severity of the recession and the severity of the financial losses.”

The economist said the recession will last 18 to 24 months, pushing unemployment to 9 percent, and already depressed home prices will fall another 15 percent. The U.S. government will need to double its purchase of bank stakes and force lenders to eliminate dividends to save them from bankruptcy, Roubini added. Treasury Secretary Henry Paulson said today he plans to use $250 billion of taxpayer funds to purchase equity in thousands of financial firms to halt a credit freeze that threatened to drive companies into bankruptcy and eliminate jobs.

``This will be the first round of recapitalization of the banks,” Roubini said. “The government has to decide to intervene much more directly in the provision of credit and the management of these companies.”

Read moreRoubini: US Will Suffer Worst Recession in 40 Years

GM to hasten factory closings

Wis. plant, Grand Rapids affected

General Motors announced Monday that it will idle its Janesville, Wis., SUV factory on Dec. 23.
(2005 photo by Janesville Gazette via AP)

General Motors Corp. announced Monday that it will close its Grand Rapids stamping plant in December 2009 and accelerate the closing of its Janesville, Wis., assembly plant by more than a year to Dec. 23 of this year.

The plant closing announcements come just a little more than a week after the automaker said it would advance the closure of its Moraine, Ohio, assembly plant.

All three plants make parts for or assemble large and midsize trucks, which have seen particularly large drop-offs in sales this year with the worsening economy and high gas prices.

Monday’s announcements are part of GM’s plans to accelerate plant actions to save money in the face of the worst auto market in more than a decade.

GM has not said whether it will close other plants early or announce new closure actions.

GM started the day Monday by telling 1,300 workers in Janesville that it would close the plant Dec. 23, more than a year before the company had planned.

Read moreGM to hasten factory closings

Germany’s Car Industry Crashes

For years, Germany Inc.’s best promotional vehicles have been the world-class luxury cars the country produces. Shiny Audi, BMW and Mercedes-Benz cars are like mobile billboards for excellence, from New York to Moscow, Buenos Aires to Shanghai.

But as the global financial crisis begins to take its toll on the real economy, Germany’s export machine has hit a wall. German exports fell 2.5% in August, the sharpest fall since 2003, as consumers and companies around the world cancel orders for everything from high-end industrial equipment to chemicals.

The car industry, still Germany’s biggest employer, is the worst hit. High gas prices in key markets such as the U.S. have slowed sales for months. Some consumers have been waiting for more fuel-efficient models, while many more are now delaying new purchases because of uncertainty over their jobs. Thanks to the credit crunch, even people who want to buy are finding finance has dried up.

All that spells trouble for the likes of BMW, Mercedes Benz, Porsche, Volkswagen, Ford Europe and General Motors’ Europe arm, Opel. Ferdinand Dudenhoffer, a respected industry analyst, predicts that the number of new German cars delivered to customers in 2008 will fall by at least 100,000 units to around 3.1 million, and will likely slip below three million next year. As a result, he says, German car companies will have to cut up to 20,000 jobs over the coming year.

Read moreGermany’s Car Industry Crashes

With Spotlight on Pirates, Somalis on Land Waste Away in the Shadows

Above, a severely malnourished baby lay unresponsive on Thursday as the mother and father sat nearby in a feeding center in Afgooye, Somalia.

AFGOOYE, Somalia – Just step into a feeding center here, and the sense of hopelessness is overwhelming.

Dozens of women sit with listless babies in their laps, snapping their fingers, trying to get a flicker of life out of their dying children.

Little eyes close. Wizened 1-year-olds struggle to breathe. This is the place where help is supposed to be on its way. But the nurses in the filthy smocks are besieged. From the doorway, you can see the future of Somalia fading away.

While the audacity of a band of Somali pirates who hijacked a ship full of weapons has grabbed the world’s attention, it is the slow-burn suffering of millions of Somalis that seems to go almost unnoticed.

The suffering is not new. Or especially surprising. This country on the edge of Africa has been slowly, but inexorably, sliding toward an abyss for the past year and a half – or, some would argue, for the past 17. United Nations officials have called Somalia “the forgotten crisis.”

Read moreWith Spotlight on Pirates, Somalis on Land Waste Away in the Shadows

What is to be Done? A Possible Solution to the Economic Crisis


Readers have been pressing for a solution to the financial crisis. But first it is necessary to understand the problem. Here is the problem as I see it. If my diagnosis is correct, the solution below might be appropriate.

Let’s begin with the fact that the financial crisis is more or less worldwide. The mechanism that spread the American-made financial crisis abroad was the massive US trade deficit. Every year the countries with which the US has trade deficits end up in the aggregate with hundreds of billions of dollars.

Countries don’t put these dollars in a mattress. They invest them. They buy up US companies, real estate, and toll roads. They also purchase US financial assets. They finance the US government budget deficit by purchasing Treasury bonds and bills. They help to finance the US mortgage market by purchasing Fannie Mae and Freddie Mac bonds. They buy financial instruments, such as mortgage-backed securities and other derivatives, from US investment banks, and that is how the US financial crisis was spread abroad. If the US current account was close to balance, the contagion would have lacked a mechanism by which to spread.

Read moreWhat is to be Done? A Possible Solution to the Economic Crisis

Economic chaos creates surge in homelessness

CAMBRIDGE, Massachusetts (AP) — The number of homeless families in Massachusetts has surged — a spike that has overwhelmed the state’s shelter capacity and forced it to again place homeless families in motels.

The number of homeless families living in Massachusetts motels skyrocketed in September 2008.

Driving the increase is the sour economy, rising energy costs, escalating unemployment and shortage of affordable housing. For the first time, the state is tracking how many families are winding up homeless due to foreclosures.

“You’re seeing a perfect storm,” said Robyn Frost, executive director of the Massachusetts Coalition for the Homeless.

Read moreEconomic chaos creates surge in homelessness

U.S. loses 159,000 jobs in September, worst one-month drop in five years

WASHINGTON — As the presidential election season nears its climax, there is growing evidence that the country is slipping into the deepest recession in decades.

The latest marker came Friday, when the government reported that employers shed 159,000 jobs in September, far more than expected. That was the worst one-month drop in more than five years and brings to 760,000 the number of jobs that have disappeared this year.

Economists say the accelerating pace of job losses, combined with the most severe credit crisis since the Great Depression, make it increasingly likely that the government bureau that determines business cycles will eventually stamp “recession” on this one.

“This should remove any lingering doubts that the economy is in a recession,” said Dean Baker, co-director of the Center for Economic and Policy Research. “The rate of job loss is accelerating and the unemployment rate is virtually certain to cross 7% early in 2009.”

Read moreU.S. loses 159,000 jobs in September, worst one-month drop in five years

Democrats and Republicans alike sceptical of Bush bailout plan

Federal Reserve chairman Ben Bernanke folds his hands while testifying with US Treasury secretary Henry Paulson before the Senate banking committee on Tuesday. Photograph: Charles Dharapak/AP

The proposed $700bn bailout of US financial markets faced harsh criticism in Congress today, with liberals and conservatives both sceptical that granting the Bush administration power to buy up risky mortgages would avert further economic crisis.

Yet despite the wariness from the Senate banking committee, where Henry Paulson and Ben Bernanke appeared today, the financial rescue seems poised to win approval by next week at the latest.

“This is not something I wanted to ask for,” the US treasury secretary said, assuring senators that “I feel your frustrations” and “I’m angry” at the prospect of Wall Street firms getting saved by the government.

But Paulson and Bernanke did ask for broad latitude to decide which toxic assets would win a purchase by the government. Senators of both parties did not attempt to hide their anger at the request, citing the Bush administration’s previous assurances of market stability.

“We have been given no credible assurances that this plan will work,” Richard Shelby, the senior Republican on the banking panel, said. “Congress does not have time to determine if there are better alternatives.”

The committee’s Democratic chairman, Chris Dodd, questioned Paulson’s request for immunity from any legal or government review of his actions during the bailout process.

“After reading this proposal, I can only conclude that it is not just our economy that is at risk,” Dodd told the treasury secretary, “but our constitution as well.”

Read moreDemocrats and Republicans alike sceptical of Bush bailout plan

Jobless set to top two million as the UK economy heads for meltdown

A JobCentre office

The true scale of the jobs disaster facing Britain is revealed today as experts issue dire warnings that up to half a million workers will lose their jobs over the next two years, as companies cut costs and scale back investment plans to survive the economic downturn.

Official figures are widely expected to reveal this week that the number of people out of work and claiming benefits increased for a seventh successive month in August.

Finance companies based in London’s Square Mile have already laid off thousands of workers since the US mortgage crisis unleashed chaos in the world’s markets last summer; and the 5,000 UK-based staff at crisis-hit investment bank Lehman Brothers are awaiting news this weekend about how many of them will be made redundant.

Read moreJobless set to top two million as the UK economy heads for meltdown

Tens of thousands to be laid off every week as UK falls into recession

MPC member warns of ‘horrible surprise’
Gloomy assessment sends London shares falling

Tens of thousands of people could be laid off every week in the run-up to Christmas as the UK economy falls into recession, David Blanchflower of the Bank of England’s monetary policy committee warned today.

Blanchflower told MPs to expect “a large increase in unemployment”, and warned that a “horrible surprise” could be just around the corner. The gloomy assessment sent shares in London falling, and also weakened sterling yet further against the dollar.

Blanchflower, who has repeatedly tried and failed in recent months to persuade the MPC to cut interest rates, predicted that the unemployment count will rise by 60,000 a month for several months in a row, probably starting in October.

“I believe we will see a deeper economic decline than other people think,” Blanchflower told the Treasury select committee, ruling out the possibility that the UK GDP will not shrink.

Read moreTens of thousands to be laid off every week as UK falls into recession