The Great Recession of 2008-09 was triggered by the excessive debt accumulation and leverage of private agents – households, financial institutions and even a fat tail of the corporate sector – in many advanced economies. And while there is a lot of talk about deleveraging, the reality is that private sector debt ratios have stabilized at very high levels while, as a consequence of the fiscal stimulus to get economies out of a severe recession and the socialization of part of private losses, there is now a massive re-leveraging of the public sector with deficits in excess of 10% of GDP in many advanced economies and debt to GDP ratios expected to sharply rise and in some cases double in the next few years.

Check out all of the RGE Analysis and EconoMonitor contributions that were published this past week at roubini.com.

RGE Analysis: [Available only to RGE clients]

The Eurozone’s ‘Bay of PIIGS’ by Arnab Das, Elisa Parisi-Capone, Natalia Gurushina, Katharina Jungen and Jennifer Kapila Greece is the frontline of the battle to restore eurozone (EZ) fiscal solvency and discipline, improve and better align structural policies, reduce EZ divergences and sustain the euro. The battle encompasses Portugal, Ireland, Italy, Greece and Spain—grouped together as the “PIIGS” because they are at risk from the housing bust, the financial crisis or the ensuing deleveraging. RGE ranks 16 EZ members by domestic and external vulnerability, following the methodology in Gros/Mayer (2010). Their external index shows that Greece, Portugal, Ireland, Italy and Spain are the most vulnerable to external shocks, in that order. Applied to the domestic market, our analysis shows that Spain, Ireland, Portugal and Italy are most vulnerable on the home front (like unemployment and productivity).

Last week, Nouriel Roubini released an analysis exclusively for RGE clients. While maintaining his core projection of protracted U-shaped growth in the United States, Roubini argued that the risks of a double-dip recession in the United States are rising. The following content is excerpted from that analysis, the full version of which is still available just for clients on Roubini.com.

V, U and W

A slew of poor economic data over the past two weeks suggests that the U.S. economy is headed for a U-shaped recovery—at best—in 2010. The macro news, including data on consumer confidence, home sales, construction and employment, actually suggests a significant downside risk even to the anemic levels of growth which RGE forecast for H1. The U.S. faces continued challenges in H2—particularly as historic levels of fiscal stimulus fade—and appears far too close to the tipping point of a double-dip recession.

The central bank may end a 20-month peg to the dollar as soon as the second quarter, allowing a 2 percent one-step gain, and then let the currency strengthen another 1 percent to 2 percent in 12 months, Roubini said in an interview in New York. The yuan rose 21 percent between July 2005 and July 2008, when the government halted its advance to protect exports.

Check out all of the RGE analysis and EconoMonitor contributions that were published this past week at roubini.com.

RGE Analysis: [Available only to RGE clients]

U.S. Growth Outlook: Still Anemic and U-Shaped but Risks of a Double-Dip Recession Are Rising by Nouriel Roubini

A slew of poor economic data over the past two weeks suggests that the U.S. economy in 2010 is headed for – at best – a U-shaped recovery. The macro news, including data on consumer confidence, home sales, construction and employment, actually suggests a significant downside risk even to the anemic 2.7% growth which RGE forecast for H1. With the positive effects of the historic levels of fiscal stimulus due to fade this year, the U.S. faces at best a 1.5% growth rate in H2, which looks too close for comfort to a tipping point of a double-dip recession.

As the debate of the shape of the recovery in the United States rages on, Nouriel Roubini analyzes the macro data and finds it to be fully consistent with – at best – a U-shaped recovery.  However, the last two weeks of poor economic data suggest that the probability of a W, a double-dip recession, is rising. The following RGE Analysis U.S. Growth Outlook: Still Anemic and U-Shaped but Risks of a Double-Dip Recession Are Rising is available only to RGE clients.

In this week’s note, we examine the price drivers of silver, the least “precious” of the precious metals. The following content is drawn from an RGE Analysis by Mikka Pineda, “Will Silver Always Be Second to Gold?” which was released to clients last week. For more related analysis on silver, gold, the base metals and other commodities, please see RGE’s extensive Q1 2010 Commodities Outlook.

A credit-fueled investment boom successfully boosted China’s growth to 8.7% in 2009, but cheap money drove up asset prices as well, especially in property markets. As China’s output gap closes, loose money is now set to become inflationary, particularly if China’s potential growth rate has come down slightly, as RGE thinks it has. The People’s Bank of China (PBoC) has twice hiked banks’ required reserve ratios (RRR) in 2010, following a return to net liquidity reductions through open-market operations in October 2009, but RGE suspects that the tightening moves have had little effect. As discussed in a recent RGE analysis, “China: No Exit,” which is available exclusively for RGE clients, China’s monetary policy has shifted toward a neutral stance in recent months, but it will have to tighten further if inflation and the property bubble are to be contained.

Check out all of the RGE analysis and EconoMonitor contributions that were published this past week at roubini.com.

RGE Analysis [Available to RGE Clients Only]:

Latin America: What’s Coming Up? by Bertrand Delgado and Juan L. Maldonado

The main event this week in Latin America will be the monetary policy decision in Mexico, where RGE expects the central bank to stay on hold at 4.5%.  Moreover, inflation expectations in Brazil are likely to continue to deteriorate as a result of higher-than-expected inflation last week. Finally, market participants will pay attention to economic and fiscal numbers in Argentina, as well as GDP dynamics in Peru.  As expected, Chile’s and Peru’s central banks stayed on hold at recent meetings, indicating that recent surprises on inflation were driven by internal supply side shocks rather than demand pressures.  We are introducing the section “What Else is Cooking in LatAm?” highlighting other important issues affecting the region.