Recession Odds Increase as Stalemate Persists, Roubini Says

Oct. 14 (Bloomberg) --The chance of a U.S. recession grows every day officials in Washington fail to come up with a solution to stave off a potential default and reopen the government, according to New York University’s Nouriel Roubini.

President Barack Obama summoned the top four congressional leaders to the White House today as lawmakers remain deadlocked over how to end the partial government shutdown and prevent U.S. borrowing authority from lapsing in three days. The government has been partially closed since Oct. 1. Unless a deal is reached, the government’s authority to borrow will reach its limit on Oct. 17, according to the Treasury Department.

“There is uncertainty that is already affecting business, investor and consumer confidence, leading to less retail sales, less capital spending by the corporate sector,” Roubini, chairman of Roubini Global Economics LLC, said on Bloomberg Radio’s “Hays Advantage” with Kathleen Hays. “If we were to reach the debt limit and have a technical default on Treasuries and if the government shutdown were to go on for weeks to come, then there will be a significant risk of a recession.”

A technical default that drags out would be a “disaster” for financial markets, as well as a drag on growth in an economy “that is barely growing right now at 1.5 percent,” said Roubini, who predicted the 2008 financial crisis.

While investors have remained calm so far, the uncertainty from the impasse may prompt overseas investors to diversify away from U.S. dollar assets, weakening the currency and sending borrowing costs higher, Roubini said.

Bill Rates

“The creditors of the United States are worried,” Roubini said. “They have been telling the United States to get their act together on their fiscal issues.”

Rates on Treasury bills maturing through the end of the year rose last week as officials in Washington sought a short-term budget agreement that may push back the deadline for a potential default by at least six weeks.

Rates on debt due on Nov. 29 rose 12 basis points, or 0.12 percentage point, to 0.16 percent last week, according to Bloomberg Bond Trader prices. They were negative as recently as Sept. 30. The Treasury market is closed today for the Columbus Day holiday.

To contact the reporter on this story: Cordell Eddings in New York at ceddings@bloomberg.net

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

Press spacebar to pause and continue. Press esc to stop.

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.