Fiscal-Cliff Agreement Won’t End Risk, Roubini Says: Tom Keene

The U.S. economy will be vulnerable to fiscal turmoil next year even if politicians reach an agreement to avoid the so-called fiscal cliff, according to Nouriel Roubini, who won the nickname Dr. Doom for predicting hard times before the financial crisis began in 2008.

An accord by lawmakers that avoids the worst of the potential headwinds will probably still leave the economy open to disruption, Roubini said in a television interview on “Bloomberg Surveillance” with Tom Keene, Ken Prewitt and Sara Eisen. Roubini is a New York University professor and chairman of a consulting firm that bears his name.

The fiscal cliff refers to the $600 billion of tax increases and spending cuts that will kick in automatically in 2013 unless Congress fails to break a partisan deadlock and reach agreement on the nation’s budget deficit.

“Eventually, there will be an agreement. We are not going to have a fiscal cliff,” Roubini said. The nation probably will “have a bump, meaning a fiscal drag of only 1 percent, as they are going to agree on some revenue increases and on some spending cuts,” he said.

U.S. gross domestic product will expand 2.2 percent this year and 2.1 percent in 2013, according to median forecasts compiled by Bloomberg. The government may say Oct. 5 that the unemployment rate rose to 8.2 percent, holding above 8 percent for the 44th straight month in September, according to the median estimate in a Bloomberg News survey.

‘Stall Speed’

If the economy continues to grow at about “only 1.5 percent and you have a fiscal bump of 1 percent of gross domestic product, then growth next year could be as low as 0.5 percent,” Roubini said. “Given how slow we are growing, even a fiscal bump, let alone a fiscal cliff, pushes us close to stall speed.”

The co-founder and chairman of Roubini Global Economics LLC predicted the U.S. housing bubble before the market peaked in 2006, while failing to forecast a rebound in global stocks in 2009.

President Barack Obama and Republican challenger Mitt Romney debate economic policy in Denver today. Whoever wins the presidency will contend with a budget on a trajectory dubbed unsustainable by Federal Reserve Chairman Ben S. Bernanke.

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said in an interview last week there’s growing support on Capitol Hill for tackling the debt in a constructive manner. Washington-based MacGuineas said she’s hopeful a “grand bargain” to put the government’s finances on a sounder footing may be possible between a newly elected president and Congress, helped along by the need to deal with the fiscal cliff.

To contact the reporters on this story: Liz Capo McCormick in New York at Emccormick7@bloomberg.net; Tom Keene in New York at tkeene@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.