Renowned economist Nouriel Roubini warned Friday that a legislative impasse and inadequate fiscal stimulus – at a time when coronavirus cases are on the rise – could put the economy on hold. Dual recession.
By the end of Friday, former Vice President Joe Biden appeared to be increasingly dominant in his White House entry, while President Donald Trump fell behind both in the popular vote and the Electoral College as the states. complete the counting of votes. Meanwhile, Republicans seem to have an edge in retaining a majority in the Senate.
Some people on Wall Street have suggested Trump and the GOP Senate might come up with a “lame duck”; stimulus ahead of January’s inauguration.
However, Roubini argued that the incumbent “had no incentive” to deny Republican requests for a smaller bill – especially if Biden was officially declared the winner of the election.
“Remember when [former President Barack] Obama came to power during the deep recession, not a single Republican voted for that stimulus measure. This time, Republicans will say, ‘We won’t help Biden. Let the economy turn around because we will have a chance by 2022, ” the New York University economist told Yahoo Finance in a broad-based interview.
Roubini – widely known as “Dr. Doom ”for his dark prognosis – cast doubt on prospects for a bipartisan deal to pump new cash into a weakening economy. Any stimulus takes “over a trillion to make a difference,” he added.
Regarding that, “we will have a deadlock like in the past – we won’t have enough fiscal stimulus, the economy will weaken and that will be something that will ultimately have a negative impact on the market. , “he added.
The market defies uncertainty, but a lot will suffer.
As investors began to prepare for the election, the S&P 500 announced its best week since April, largely because Biden’s narrow Democrats mean little prospect for bulls. Huge taxes and costly government initiatives, if you officially declare the winner.
“In the short term, of course, the stock market is bullish this week because they believe divided government is good and when they believe divided government is good because Biden wants to raise taxes,” Roubini said.
Those initiatives include increasing corporate taxes from 21 to 28%, closing tax loopholes, and increasing taxes on people making more than $ 400,000, among other things. Those proposals will be opposed to Republicans in Congress, and will come when the economy suffers from the consequences of the COVID-19 crisis.
As the virus spread, the prospects for the economy became increasingly blurred. Roubini estimates that Europe went into dual recession in the fourth quarter and the first quarter of 2021.
“In the United States, even if you are not locked on the Draconian like they would in Europe,” the increased infection means that people and companies “fear more risk, more uncertainty, they spend more less, they save more, he said. Uncertainty weighs heavily on jobs, personal spending, and business investment.
In the US, without proper fiscal stimulus, “it could have a negative impact on markets over time, not in the short term, but over time as we realize that we having a “V” more like a “U” than Roubini adds to the double recession risk, referring to the speed and scope of recovery.
Currently, his baseline is “mediocre recovery, anemia, nearsightedness, under trends which means a lot of people will suffer.”
While the October employment report on Friday showed the economy added 638,000 jobs and the unemployment rate dropped to 6.9% from 7.9% a month ago, 10 million people still don’t have jobs. jobs since the beginning of the pandemic.
To be sure, while the economy has improved, for many Americans, it’s “not a good economy,” the economist said.
According to Roubini, one of the challenges that Americans without jobs can face is when companies rearrange, rather than offer full-time jobs with full wages and benefits. Once they do, they will likely choose to work part-time, freelance, contractors, and contract employees with lower wages, he estimates.
“The corporate sector wants flexibility,” says Roubini. That means these precarious jobs will become the new standard, leading to economic weakness, greater uncertainty, and increased income and wealth.
Julia La Roche is a correspondent for Yahoo Finance. Follow her on Twitter.
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