Has the U.S. government created unsustainable deficits?

“The Fed underestimated the extent of the housing-market slump and the subprime mortgage crisis that has led to $133 billion in losses, Roubini said in a Bloomberg Television interview in Davos, Switzerland. The central bank lowered its target rate for overnight loans between banks by 75 basis points to 3.5 percent on Jan. 22 in its first emergency cut since 2001.

`It’s too little, too late,’ Roubini, who is also a professor at New York University’s Stern School of Business, said yesterday. `Whatever the Fed does, it cannot prevent the recession. They got it wrong and now they are cutting rates.’

Sales of existing homes in the U.S. declined in December to the lowest since at least 1999, economists surveyed by Bloomberg News forecast before today’s report from the National Association of Realtors. Global stock markets have lost $7.6 trillion, or 12 percent of their value this year, on concern that a housing recession and losses tied to defaulted mortgages will shrink the U.S. economy for the first time since 2001.

Reports this month showed U.S. unemployment reached a two- year high in December, while the Institute for Supply Management’s manufacturing index showed a contraction for the first time since January 2007.

`More Severe’

President George W. Bush on Jan. 19 proposed a $150 billion fiscal-stimulus plan, equivalent to about 1 percent of gross domestic product, to help revive economic growth.

`The fiscal package is just peanuts,’ Roubini said. `We have squandered our surplus, we have run out of fiscal bullets. It’s not going to make any difference.’

Roubini has said the U.S. would enter a recession since July 2006 because the current account and budget deficits were unsustainable and losses tied to subprime loans would hurt the banking system.”