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Roubini: Economy in danger of slowing next year

Nouriel Roubini, the New York University professor who developed a reputation as a doomsday prophet after he predicted the financial crisis, said the U.S. economy was in danger of slowing next year because of stagnant wages and Washington gridlock with fiscal policy.

“We may be going back to stall speed in the U.S. economy,” Roubini said at the Milken Institute’s 2012 Global Conference in Beverly Hills.

Raising taxes in the U.S. and reducing government subsidies could lead to less disposable income in people’s pockets and then a slowdown in consumption, he said, noting stagnating wages.

“The optimists today are saying the U.S. is on the cusp of a self-sustaining recovery,” he said, adding:  “My view of it is: The data suggest that we’ll be lucky if this year we’re going to grow [by] barely 2%.”

Roubini was discussing with Michael Milken, the institute’s founder, top problems facing the U.S. and global economies. This year’s conference is being held at the Beverly Hilton in Los Angeles.

Among the major issues Roubini according to latimes cited:

--The possibility of military confrontation between Iran and Israel and the United States.

--Long-term political conflicts in the Middle East, which he called a “total mess.” The Arab Spring, he predicted, “will become an Arab winter.”

--Energy: There’s no U.S. energy strategy or policy in place. “Where is the leadership?” he said. Natural gas deposits may be plentiful but U.S. energy independence is years, perhaps decades, away, he said. “It’s going to be a 20-year story,” he said.

--The European debt crisis and the future of the Euro common currency. European countries are in a deepening recession and further austerity will make the situation worse, he said. Eventually, Roubini said, a social and political backlash to austerity could lead to a breakup of Europe’s common currency.

“Breaking up is going to be a mess,” he said, and “financial contagion will be significant.”
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