"Obama," Roubini says, "inherited the worst economic crisis since the Great Depression," as well as a large budget deficit. "His stimulus package, together with a backstop of the financial system, low rates and quantitative easing from the Federal Reserve, prevented another depression." Further, Roubini supports Obama's "growth now," rather than an "austerity now" path. And Obama did all that with a Republican party "trapped in a belief in voodoo economics," which blocked him every step of the way.
"Already a Dirty Word"
Still, Roubini says, none of those good moves are going to make much of a difference after the elections because fiscal policy will likely take a different route. "The term stimulus is already a dirty word, even within the Obama administration," Roubini adds. "After the Republicans make significant electoral gains further stimulus is even less likely." And this, just when the economy needs the boost most to prevent a double-dip recession.
With near-zero interest rates and global risk aversion, more investors will turn to safe dollars and U.S. debt, especially if China continues to keep its currency depressed. And the U.S. doesn't suffer just from federal debt, but from "unfunded Social Security and Medicare liabilities, state and local government debt, and public pension bills that add up to many multiples of U.S. GDP."
Luckily, the Fed's easing, which will remain the administration's main policy, will prevent the worst of the coming fiscal train wreck, Roubini says. But the risk is that Obama will then preside over Japanese-style stagnation, where growth is barely positive, and deflationary pressures and high unemployment linger. He fears that such a fiscal mess may become Obama's worst legacy.