Dr. Doom: U.S. economy faces 'death by a thousand cuts' Joseph Lazzaro Sep 14th 2009 at 3:50PM http://www.dailyfinance.com/2009/09/14/dr-doom-u-s-economy-faces-death-by-a-thousand-cuts/ Given his reputation for dark mutterings and grim prognostications, the law of averages states that, sooner or later, NYU Economics Professor Nouriel "Dr. Doom" Roubini is going to say, '"The sky is blue, it's a beautiful day outside, and the economy looks great." Needless to add, however, Monday was not that day. On September 14, true to form, Roubini told CNBC Monday that the U.S. faces a difficult time in the quarters and year ahead, as commercial/residential real estate doldrums and a frugal consumer continue to weigh on the economy. "It's going to be death by a thousand cuts," Roubini, chairman of RGE Monitor, told CNBC Monday. "The financial system is severely damaged, and it's not just the banks." Roubini, who two years ago accurately predicted the global financial crisis, said fallout from the commercial real estate market's collapse, another double-digit annual decline in U.S. home prices, sluggish consumer spending, pressure in the non-government bond sector, and a comatose securitization market will all weigh on demand in the quarters ahead. He added that he expected more than 1,000 financial institutions to fail by the end of the financial crisis. Roubini also reiterated his forecast of a threat of a double-dip recession, and -- at best -- a slow-growth, U-shaped recovery for the U.S. economy. Some economists agree with Roubini's recovery forecast, while others argue that recent signs of stabilization in the manufacturing and housing sectors hint that GDP growth may be stronger-than-expected in Q3/Q4, and that a U-shaped recovery may prove to be a tad conservative. In particular, the latter economists point to low business inventories and the Institute for Supply Management's Purchasing Managers Index; in August, the index had its eighth consecutive month of rising numbers as it advanced to 52.9 percent from 48.9 percent in July. These economists argue that the economy will get an added boost because businesses chopped inventories and payrolls too much during the recession: as these companies attempt to rebuild inventories to avoid being "product short" during the recovery, they seem poised to further boost GDP. The pent-up demand for new cars in the United States is another data point that supports stronger-than-expected GDP growth in the immediate quarters ahead. U.S. new cars sales are on pace to hit 9.5-million-units for 2009, but about 10.5 million cars must be sold to replace vehicles that have worn out; some of the gap will be made up by used car sales, but the remainder is pent-up new car demand, something that will support the recovery. Economic Analysis: Roubini also told CNBC that the Lehman Brothers collapse was a symptom and not a cause of the global financial crisis, and that the crisis would have ensued whether or not the federal government saved Lehman. In fairness, most economists argue that Lehman did not cause the crisis, but that the failure to save the key financial institution magnified the crisis - crushing bank-to-bank trust, and rending commercial paper markets nearly useless in a matter of weeks. That said, Roubini has been consistently on the mark regarding demand, credit quality, liquidity, and systemic risk, and it's hard to refute his argument on the threat of a double-dip recession: the more serious risk in the United States and in Europe remains a lack of demand and a lack of consumers, not too much stimulus and commercial activity.