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Economics 101: US Recession Could Last Up to 36 Months: Roubini

Posted on March 9, 2009
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The man who predicted the current financial crisis said the US recession could drag on for years without drastic action.

Among his solutions: fix the housing market by breaking “every mortgage contract.”


“We are in the 15th month of a recession,” said Nouriel Roubini, a professor at New York University’s Stern School of Business, told CNBC in a live interview. “Growth is going to be close to zero and unemployment rate well above 10 percent into next year.”

Echoing a speech he made earlier in the day, Roubini said he sees “no hope for the recession ending in 2009 and will more than likely last into 2010.”

Roubini, who is also known as “Dr. Doom,” told CNBC that the risk of a total meltdown has been reversed for now but that the economy is going through “a death by a thousand cuts.” He also said that “most of the U.S. financial institutions are entirely insolvent.”

“The market friendly view for the banks is nationalization,” said Roubini. “Temporarily take over the banks, clean them up and get them working again.”

As for the claim that the Treasury Department can’t legally take over the banks, Roubini said that most of the banks are already owned by the government and that the government could “put them in receivership” if it had to.

Earlier in the day, Roubini spoke to the CBOE Risk Management Conference and said he believes total losses could peak at $3.6 trillion in the financial system, with half of that being borne by banks and bank dealers and the other half borne by hedge funds and pension funds, among others.

He said that while U.S. GDP next year could be zero, global GDP could dip into negative territory.

“We could end up … with a 36-month recession, that could be “L-shaped stagnation, or near depression,” Roubini said. He puts the chance of a severe U-shaped recession at 66.7 percent, and a more severe L-shaped recession at 33.3 percent.

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