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Tom Holland

The prophet of doom was in a relatively cheerful mood yesterday.
'Honestly, as of now I don't see any good news,' he said brightly, tucking into breakfast at Hong Kong's Four Seasons Hotel.
This economic crisis has been no respecter of reputations. Financiers, regulators and politicians have all seen their good names shredded since the credit crunch first began to bite in mid-2007.
Even Warren Buffett's halo has slipped. Last week, his Berkshire Hathaway investment  firm announced a 10 per cent decline in asset value for  last year after ill-timed bets on oil company ConocoPhillips and shares in Irish banks.
But not everybody has suffered. If anyone emerges from this crisis with his reputation enhanced, it will be Nouriel Roubini, the New York University economics professor who was one of the few forecasters to see the crash coming.
As long ago as July 2007, before most of us had even heard of the term subprime, Professor Roubini was warning that the bursting of the US credit bubble would lead to recession.
Then  in February last year, he published a paper entitled Twelve Steps to Financial Disaster, in which he forecast, among other things, the collapse of the US stock market, the failure of a number of Wall Street investment houses and government intervention to rescue America's crumbling banks.
Ever since, Professor Roubini has become the go-to guy for media in search of catastrophic predictions about markets and the economy, earning himself the nick-name Dr Doom in the process.
Yet, while Professor Roubini's current forecasts are suitably gloomy, they are not entirely black.
Although he says a protracted and deep global recession is unavoidable, he believes concerted government action can still prevent the inevitable U-shaped recession from turning into a worst-case L-shaped depression.
Unfortunately, the risk that recession will become depression is rising. Part of the trouble is that fears of a downturn are self-fulfilling. Anticipating a slump in demand, companies are cutting capital investment, production and jobs.
Of course, that suppresses incomes, which makes it even harder for savers whose wealth has been eroded by the 27 per cent decline in US property prices and the 55 per cent fall in the stock market to repair their balance sheets. As a result, the downturn in consumer demand will be even deeper and more drawn-out than many economists expect, warns Professor Roubini.
That, in turn, is bad news for Asia, and especially for China, which remains heavily reliant on exports and export-related investment to power economic growth.
With declining imports of raw materials and intermediate goods signalling that further falls in China's exports are on the way, Professor Roubini has few expectations that Beijing's stimulus spending can keep growth ticking over for long. Although he gives China's leaders full credit for trying to support demand with public spending, he says official stimulus efforts are only likely to postpone the economic crunch for a few months.
'A hard landing is inevitable, given what's happened in the rest of the world,' he warns.
Retooling the Chinese economy to run primarily on domestic consumer demand will take five to  10 years. In the meantime,  Professor Roubini says, world governments need to co-ordinate their policies across six key areas if they are to revive global demand and prevent recession from slipping into depression.
 First, central banks need to loosen monetary policy far more drastically than they have done already, adopting 'quantitative easing' measures, for example by buying more types of securities.
Even so, loosening monetary policy when demand has stalled tends to be as effective as pushing on a string so, secondly, governments especially in Europe need to ramp up fiscal spending further  to boost demand.
At the same time, governments must do whatever it takes - including full nationalisation - to clean up their banking systems or risk ending up facing a lost decade like Japan in the 1990s.
Fourth, policymakers need to force banks to resume lending. Professor Roubini explains that the present credit drought is partly a problem of collective inaction. With a lack of credit threatening the survival of businesses throughout the economy, no bank wants to be the only one to lend money, even to creditworthy companies, lest its borrowers are hurt by failures at other credit-starved companies.
Fifth, governments of economies hit by property slumps should introduce an across-the-board reduction in the principal value of mortgage debts  to relieve the pressure on insolvent households.
And finally, major shareholders should sanction an immediate doubling of the International Monetary Fund's capital base so it can extend effective assistance to emerging markets facing liquidity problems  because of the crisis.
Even in a best-case scenario  where everything happens according to his script, Professor Roubini warns that the world still faces an economic contraction this year and growth of less than 1 per cent  next year, with the developed economies growing at below trend rates through 2011.
Yet, despite his gloomy reputation, he still believes his worst-case scenario of an L-shaped depression can be avoided. And he gives a cautious thumbs-up to the administration of United States President Barack Obama, awarding its economic programme so far an A for effort, if only a B for results. 'At least policy is moving in the right direction,' he says. 
That might not be much, but it is something. Clearly, with Dr Doom, cheerfulness is relative.



A small glimmer of hope at breakfast with Dr Doom