MercoPress. South Atlantic News Agency

US “run out of bullets” to stimulate the economy, says Roubini

The NYU professor predicts China’s growth in second half will fall to 7%

Influential market commentator and New York University Professor Nouriel Roubini believes the US has ‘run out of bullets’ in its efforts to stimulate the economy and expects it to drag the global economy back into recession.

2005, said US growth was likely to dip below 1% in the second half of the year despite the Federal Reserve having pumped $3 trillion into the financial system.

He is currently a professor of economics at Leonard N. Stern School of BusinessNew York University, and chairman of economics firm Roubini Global Economics.

Speaking to an audience of Europe's senior monetary policy experts at the annual Ambrosetti Forum economics conference at Lake Como, Roubini said hopes of a decoupling would be dashed as the slowdown in the US impacted on China, Japan and the Euro zone.

He is reported as saying: 'In Europe, Germany is strong but the rest of the continent is pretty dismal. The rest of the world cannot cope without the prop of the US consumer.'

Roubini also predicted that Chinese growth in the second half of 2010 would fall to 7%.

He warned: 'Get used to it. De-leveraging has to continue as governments and consumers de-leverage in the developed world.'

‘More quantitative easing by the Federal Reserve is not going to make any difference. Treasury yields are already down to 2.5% yet credit spreads are widening again,' he said. 'Monetary policy can boost liquidity but it can’t deal with solvency problems.’

Roubini said that the US economy had reached ‘stall speed’ and that any subsequent shock to the system could tip it back into recession.

‘There is a 40% chance of double dip recession in the US and worse in Japan. Even if it is not technically a recession it will feel like it,’ he said.

He added that that while the US companies had relatively healthy cash levels, they were operating a ‘slash and burn’ policy on labor costs which made the need to generate large numbers of additional jobs fast.

‘We’ve lost 8.4 million jobs and if you include the loss of hours worked it is equivalent to another 3 million. We need to generate an extra 450,000 jobs every month for three years to get it back,’ he said

His are the latest comments from a number of market commentators warning of a US -led double dip recession ahead.