Nouriel Roubini is currently alone among macro-forecasters in making this prediction, but he is very well qualified and what he says does makes sense and deserves to be taken seriously in this election year.

“By itself th[e housing market] slump is enough to trigger a U.S. recession: its effects on real residential investment, wealth and consumption, and employment will be more severe than the tech bust that triggered the 2001 recession,” Roubini said. Housing has accounted, directly and indirectly, for about 30% of employment growth during this expansion, including employment in retail and in manufacturing producing consumer goods, he said.

In the past year, consumers spent about $200 billion of the money they pulled out of their home equity, he estimated. Already, sales of consumer durables such as cars and furniture have weakened. “As the housing sector slumps, the job and income and wage losses in housing will percolate throughout the economy,” Roubini said.

In all honesty, this sort of possibility needs to be made a priority in election public debates asap.

There are ways to prevent “serious” recessions. The Basic Income Guarantee, if coupled with a Land Value Tax and taxes on Oil/Gas to get rid of the morass of tax-code, keep marginal income tax rates low and provide people emergency spending money to reduce the economic consequences of unemployment and to keep consumer spending high and deal with our serious foreign oil addiction.

But we need to be willing to take this sort of threat seriously and be willing to act and make adjustments soon. We could phase in the oil/gas taxes, so they wouldn’t be in effect during this winter and to give people time to get more fuel efficient cars and other stuff. In a worse case scenario, a serious recession could also be coupled with serious destabilization in the Middle East and a currency run on the US, not unlike what has happened in Asia or Latin America recently.

dlw