Dr. Doom doesn’t like the sequester.
Perma-pessimist Nouriel Roubini, who also happens to be an economist at NYU’s Stern School of Business, says that despite efforts to downplay the effects of the coming automatic spending cuts, the impact will be significant.
“It doesn’t look like there will be a last-minute deal on the sequester ….the question will be how long the sequester will last,” he told The Daily Ticker on Thursday.
If it continues too many months, Roubini said, “The fiscal drag will be another 0.7% or 0.8% of economy,” which could lead to another shock in the financial markets and another rating agency downgrade.
In the latest game of political chicken between the Republicans and Democrats, Roubini said the advantage has shifted to Republicans.
“At the time of the fiscal cliff, all the bargaining power was with the Democrats because the automatic stuff was the tax increases,” he said. “This time the automatic stuff is the spending cuts,” which gives the Republicans the upper hand. He expects they will continue to try to force Democrats to accept entitlement reform.