Gluskin Sheff’s Rosenberg: Economy Remains Stuck in the Muck

Friday, 09 Nov 2012 09:53 AM

By Dan Weil

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The economy is unlikely to enter a strong growth path anytime soon, says David Rosenberg, chief economist at Gluskin Sheff.

Besides the fiscal cliff, he tells CNBC, "the other overriding problem is we never really gained true escape velocity," he says.

Escape velocity is the growth rate required for the economy to withstand financial shocks, as it did following the 1987 stock market crash and during the Asian currency crisis of 1997 and 1998.

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

Escape velocity is 4 to 5 percent, but the growth trend now is about 1.5 percent, Rosenberg says. The economy expanded 2 percent in the third quarter.

If the government dives over the fiscal cliff, the economy will enter a recession next year, he says. “The only real question is how deep."

Rosenberg favors biting the bullet now to get the deficit under control rather than waiting until later when the red ink is even bigger.

“The longer we kick the can down the road, the more we follow on the road toward Europe,” he says.

Neel Kashkari, Pimco’s head of global equities, doesn’t think Congress will make any progress on the deficit until next year. And that will mean higher stock market volatility, he said at an investment conference Wednesday, Bloomberg reports.

“There have been little signs of Republicans and Democrats really coming together. … We’re expecting to see choppy markets up until a deal is ultimately struck.”

Editor's Note: See the Disturbing Charts: 50% Unemployment, 90% Stock Market Crash, 100% Inflation

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