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Roubini Puts Chances Of Double-Dip At Greater Than 40%, Warns On Deflation

Noted economist Nouriel Roubini sees a 40% or greater chance of a double-dip recession, noting that temporary measures to support the economy earlier this year have become "headwinds" to growth.

Tax credits for home buyers and the government's cash for clunkers campaign, both popular programs that spurred economic activity in the first quarter before expiring, are now having a detrimental impact on the economy, Roubini suggested on CNBC Thursday morning.

The economist known as "Dr. Doom" predicted that the government's second quarter growth estimate will be downwardly revised to an annual rate of 1.2 percent "at best." In its previous estimate, the Commerce Department said it expects 2.4% growth.

Looking ahead, US growth will be well below 1 percent in the third quarter, Roubini argues.

"With growth at a stall speed of 1 percent or below, the stock markets could sharply correct, and credit spreads and interbank spreads widen while global risk aversion sharply increases," he said in an email quoted by Bloomberg.

"Thus a negative feedback loop between the real economy and the risky asset prices can easily then tip the economy into a formal double-dip."

Roubini suggested that quantitative easing would be of little use, given that banks remain skittish about lending despite sitting on a trillion dollars of cash.

With central bankers out of bullets, Roubini also repeated his warning that the US faces Japanese-style deflation.

Companies have no pricing power and employees have no choice but to accept lower wages considering slack in the jobs market, the economist noted.

Roubini, a professor of economics at New York University, correctly predicted the collapse of the credit markets and subsequent stock market crash of 2008.

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