Dr. Doom: Partisan Divisions Will Axe a New Stimulus—and Bring Another Downturn

Wall Street seems to like the idea of a split Congress and a Biden White House. Last week was the best week for the S&P 500 (up more than 7%) since the April market bounce back. But economist Nouriel Roubini, known as Dr. Doom for his negative economic outlooks, begs to differ.

Gridlocked government in Washington means the economy won’t get the extra federal stimulus it needs up ahead to avoid slipping back into a recession, Roubini, a New York University professor, told Yahoo Finance in a video interview. While the nation’s unemployment rate for October dropped to 6.9% from 7.9%, thousands of Americans remain out of work.

Roubini lambasted talk of a beneficially split Washington, a view that is at odds with conventional wisdom. Last week’s market run-up stemmed from the widespread investor belief that a GOP Senate will curb the incoming Democratic administration’s desire for higher corporate taxes, many Wall Street analysts have said.

But in Roubini’s estimation, such a partisan situation will thwart an adequate stimulus bill. He defined that as well in excess of $1 trillion. The upshot, he said, is that “we’re not going to have enough fiscal stimulus, the economy is going to weaken, and that’s going to be something that eventually is going to bear negatively on the market.”

For more stories like this, sign up for the CIO Alert newsletter. 

Roubini has a long record of gloomy prognostications. Hence the Dr. Doom moniker. He correctly foresaw the real estate bubble’s popping and the financial crisis that devastated the banking system in 2008. Last year, he predicted a 2020 recession, although he pinpointed the trade war as the catalyst, since the coronavirus had not shown up yet.

Some talk has surfaced that the lame duck Congress, in which the GOP controls the Senate and the Dems the House, could get a smaller aid proposal through. Senate Majority Leader Mitch McConnell wants a $650 billion package, far smaller than the $2 trillion alternative that House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin have been discussing.

Roubini, though, cast doubt that a lame duck solution is likely. He noted that President Donald Trump, defeated in his reelection bid, has “no incentive” to relent on McConnell’s demands for a smaller measure. Trump has in the past expressed support for a more expensive bill.

Of course, the upcoming power arrangement in Washington is still unsettled, which means any fresh stimulus could be on hold until after the presidential inauguration in late January.

Democrat Joe Biden has been dubbed the winner in the presidential race and the House of Representatives stays in the Democrats’ hands, while the partisan makeup of the Senate is unclear. Two run-off elections could take place for seats in Georgia that Republicans have held. The outcome could tip the Senate balance to a narrow edge for the Democrats. Many political observers, however, believe that traditionally deeply red Georgia will favor Republicans for the Senate seats.

What about waiting until Biden takes office, with a Senate that’s still Republican controlled? Roubini dumped on that notion, too. He recalled that, when Barack Obama came to power in early 2009 amid the Great Recession, he ran into fierce GOP resistance for a big rescue effort.

Back then, Roubini said, “there was not a single Republican who voted for that stimulus.” In 2021, predicted Roubini, who worked in the Clinton administration, “the Republicans are going to say, ‘We’re not going to help Biden. Let the economy rot because we are going to have a chance in 2022.’”

Related Stories:

Dr. Doom Forecasts a Recession in 2020

CEOs Still Have Bleak View of the Economy

How a Trump or Biden Victory Might Affect the Economy

Tags: Donald Trump, Dr. Doom, gridlock, Joe Biden, lame duck Congress, Mitch McConnell, Nancy Pelosi, Nouriel Roubini, Steven Mnuchin, stimulus package

Two pension funds have applied to the US Treasury for a reduction of benefits under the Multiemployer Pension Reform Act of 2014 (MPRA). The Arizona Bricklayers’ Pension Trust Fund has submitted its first application, while the Carpenters Pension Trust Fund–Detroit & Vicinity has reapplied after withdrawing its original application in April.

The pension plan for the Arizona Bricklayers’ Pension Trust Fund consists of employers in the masonry industry, which, according to the application filed with the Treasury Department, declined significantly during the Great Recession and has not yet fully recovered. The fund said “eventual recovery remains uncertain.”

According to the application, the significant decline in the industry caused a steep drop in the number of employers and active participants in the multiemployer plan. Between 2007 and 2019, the number of employers participating in the plan declined by two-thirds to 10 from 30, while the number of active participants plummeted by nearly 91% to 54 from 579.

“As a result, there are insufficient contributions to the plan to sustain the plan at a healthy level as required by ERISA [the Employee Retirement Income Security Act],” the plan’s trustees said in the application.

For more stories like this, sign up for the CIO Alert newsletter. 

The plan was certified as being in critical and declining status for the plan year beginning Jan. 1, 2020, and, according to its actuary, it is projected to become insolvent during the plan year ending Dec. 31, 2039.

The trustees said the proposed benefit reduction will be accomplished by recalculating all the accrued benefits and applying a maximum reduction in benefits to 110% of the Pension Benefit Guaranty Corporation (PBGC)’s guaranteed amount. The reduction plan would become effective as of Jan. 1, 2022.

Meanwhile, the Carpenters Pension Trust Fund–Detroit & Vicinity has proposed a more complicated plan for benefits reduction that is broken down into four groups that will have their benefits reduced in different ways. Each of the four groups will be subject to a 32% cut on pre-May 1, 2007, accruals, but with variations for each group.

According to the Carpenters Pension Trust Fund application, the funded status of the plan had “declined precipitously” by the plan year ending 2003, at which time the plan was 66% funded following three consecutive years of negative returns after being 117% funded in 2000.

The trustees said the plan suffered a sharp drop in contribution hours following the market collapse of August 2008, which bottomed out at 5.8 million in the plan year ended in 2010 after exceeding 14 million hours per year in the early 2000s. As of 2020, the amount of hours worked totaled a little over 7.2 million a year. The trustees said the decline in hours was “much more severe, and the recovery much slower” than they had expected. The trustees of the plan propose that the suspension become effective July 1, 2021.

According to the plan’s actuary, the plan was certified as being in critical and declining status for the plan year beginning May 1, 2020, and it is projected to become insolvent during the plan year ending April 30, 2032.