The chances of a double-dip recession are now more than 40 percent and policymakers have options to stimulate the economy, Nouriel Roubini of Roubini Global Economics told CNBC Thursday.
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Nouriel Roubini
Second-quarter gross domestic product growth will be revised down to an a annual rate of 1.2 percent from an initial reading of 2.4 percent, Roubini said, adding that any improvement recently was due to inventory adjustments.
Roubini, who is often referred to as "Dr. Doom," also said that a "series of tailwinds in the first half of the year ... are going to be essentially headwinds" in the second half.
The fiscal stimulus will become a drag on growth in the second half of the year, inventory adjustment will have run their course, and there won't be a favorable comparison with the "awful" first half of 2009, Roubini said.
In addition, the employment boost from the census survey will disappear, and there will no longer be "a number of tax policies that stalled demand and growth for the future," he said, citing the cash-for-clunkers program and first-time homebuyer tax credits.
Growth for the rest of the year will be closer to zero than 1 percent, he said.
No More Bullets
From a monetary policy perspective, the scenario is worse than last year, Roubini said, as all of the Fed's policy bullets will pretty much be gone.
The U.S. can't run a budget deficit of 15 to 20 percent of GDP, he said. In addition, quantitative easing is unlikely to have any effect in prompting banks to lend.
"Banks today are sitting on $1 trillion of excess reserves that they are not lending out" and earning 0.25 percent on, he said. "Why would they want to lend more if we do more QE?"
The U.S. is facing a "liquidity trap," which is when financial and credit systems get stuck, Roubini said.
And with companies discounting prices and a glut in the labor market, the biggest threat to the economy is deflation, he said.
"In the short run we may end up like Japan," he said.
