Roubini sees US 'fiscal train wreck' ahead

The US economy is a "fiscal train wreck" waiting to happen, US economist Nouriel Roubini warned on Friday.

Published: 10:00AM BST 29 Oct 2010

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He painted a bleak outlook for the world's biggest economy in a commentary for the Financial Times, saying while President Barack Obama's stimulus package prevented another depression, it was coming to an end with nothing to take its place.

The economist - one of the first to predict the US housing crash and nicknamed 'Dr Doom' - said the likely path of fiscal policy after next Tuesday’s election will mean the country "experiencing serious fiscal drag just when it needs a further boost".

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While he said Mr Obama deserved credit for averting a depression and supporting “growth now” in the face of austerity drives in other nations, including Britain, he claimed stimulus had become a "dirty word" in political circles, including the government.

This left the Obama administration relying solely on the US Federal Reserve to "prevent a double dip recession" with further quantitative easing - stimulus which he believed would have little effect on US growth next year.

He argued that with a gridlock in Congress expected to get worse following next week's elections, President Obama's lack of forward looking action - such as tackling spending of social security and introducing VAT increases - meant he was trapped in a stalemate made worse "by the lack of a reason to act on the deficit".

This put the US on an "unsustainable fiscal course".

"The risk ... is that something on the fiscal side will snap ... The trigger could be a debt rollover crisis in a major U.S. state government," he wrote.

"The worst of the coming fiscal train wreck will be prevented by the Fed's easing. But the risk is (Obama) ... will then preside over ... a Japanese style stagnation, where growth is barely positive, and deflationary pressures and high unemployment linger."