Household Deleveraging and Government Deleveraging Means Slow Economic Growth

Nouriel Roubini joins Joe Stiglitz in forecasting weak economic growth. He argues that we are in the process of deleveraging. Around 40% of US mortgages will have negative equity. The combination of negative equity and any economic hardship leads to foreclosure. Most foreclosures occur when a household with negative equity suffer job loss or large medical expenses. The problems in the rest of the world are not helpful either.

The US Fed and the press do their best to look on the bright side. They believe that it is important to restore confidence. They are correct, but that is not Roubini's job, nor is it the job of Joe Stiglitz. If the problems in Europe escalate that will make things worse. There is also little hope that governments will have the will to deal with the issues that might arise. Politicians are more likely to make things worse as they try to deal with the problems of slow economic growth and rising fiscal deficits simultaneously. Efforts to reduce deficits will slow growth further and lead to higher deficits.