By Ambrose Evans-Pritchard

LONDON, England - September 5, 2010 - The United States, Japan and large parts of Europe have exhausted their policy arsenal, leaving them defenseless against a double-dip recession as recovery slows to ‘stall speed’.  “The U.S. has run out of bullets,” said Nouriel Roubini, professor at New York University, and one of a cast of luminaries with grim forecasts at the annual Ambrosetti conference on Lake Como.

“More quantitative easing (bond purchases) by the Federal Reserve is not going to make any difference. Treasury yields are already down to 2.5% yet credit spreads are widening again. Monetary policy can boost liquidity but it can’t deal with solvency problems,” he told Europe’s policy elite.

Dr. Roubini said the U.S. growth rate was likely to fall below 1% in the second half of the year, despite the biggest stimulus in history: a cut in interest rates from 5% to zero, a budget deficit of 10% of GDP, and $3 trillion to shore up the financial system.

The anemic pace compares with rates of 4%-6% at this stage of recovery in normal post-war recoveries.

“We have reached stall speed. Any shock at this point can tip you back into recession. With interbank spreads rising, you can get a vicious circle like 2008-2009,” he said, describing a self-feeding process as the real economy and the credit system hurt each other.

“There is a 40% chance of double-dip recession in the U.S., and worse in Japan. Even if it is not technically a recession it will feel like it,” he added.