Roubini Says a ‘Perfect Storm’ May Converge on the Global Economy in 2013

[KC]

Roubini Says a ‘Perfect Storm’ May Converge on the Global Economy in 2013

June 12, 2011 11:55 PM ET
By Shamim Adam

A “perfect storm” of fiscal woe in the U.S., a slowdown in China (http://topics.bloomberg.com/china/?cmpid=msnmoney.hlinks), European debt restructuring and stagnation in Japan may converge on the global economy, New York University professor Nouriel Roubini said.
There’s a one-in-three chance the factors will combine to stunt growth from 2013, Roubini said in a June 11 interview in Singapore. Other possible outcomes are “anemic but OK” global growth or an “optimistic” scenario in which the expansion improves.



“There are already elements of fragility,” he said. “Everybody’s kicking the can down the road of too much public and private debt. The can is becoming heavier and heavier, and bigger on debt, and all these problems may come to a head by 2013 at the latest.”



Elevated U.S. unemployment, a surge in oil and food prices, rising interest rates (http://topics.bloomberg.com/interest-rates/?cmpid=msnmoney.hlinks) in Asia (http://topics.bloomberg.com/asia/?cmpid=msnmoney.hlinks) and trade disruption from Japan’s record earthquake threaten to sap the world economy. Stocks worldwide have lost more than $3.3 trillion since the beginning of May, and Roubini said financial markets by the middle of next year could start worrying about a convergence of risks in 2013.



The MSCI AC World Index has tumbled 4.9 percent this month on concern recent data, including an increase in the U.S. unemployment rate to 9.1 percent in May, signal the global economy is losing steam. U.S. Treasuries (http://topics.bloomberg.com/u.s.-treasuries/?cmpid=msnmoney.hlinks) rose last week, pushing two-year note yields down for a ninth week in the longest stretch of decreases since February 2008, on bets the Federal Reserve (http://topics.bloomberg.com/federal-reserve/?cmpid=msnmoney.hlinks) will maintain monetary stimulus.


SOURCE (http://money.msn.com/investment-advice/news.aspx?feed=BLOOM&date=20110612&id=13763158&GT1=33036)This is Nouriel Roubini, not some fringe economist. This is the guy that more or less predicted the bursting of the housing bubble, the perpetuation of the economic slump, the overall decline of the US economy and more.


I'm not going to be stupid and claim this is the end of capitalism like most people post with these types of articles, but if Roubini's saying it then I think it's safe to say we're in for some rough times ahead, to say the least.

[Os Cangaceiros]

y'know, for one thing, I'm not exactly sure why anyone would think that "the worst is behind us" at this point, given that what originally lead to the present situation in the first place was never remedied. Consider the fact that the US government's solution was to A) funnel trillions of dollars into instutions that rendered financial markets insolvent with crap (a.k.a. funnel trillions of dollars to the primary benefactors of the scam, and not really end the practice at all), and B) re-package the crap and send it overseas. That doesn't really sound like an adequate solution to what is a considerable problem from any standpoint. And that's just derivatives. There's major issues like inflation, loss of confidence in the dollar etc.

That's just my barely educated opinion on the matter. In any case I think the economy isn't looking up.

[RichardAWilson]

The Global-Economy will continue to weaken. China is suffering from a real estate bubble which was financed and underwritten by the Chinese Central Bank. China continues to maintain a fixed exchange peg with the American Dollar as a method (Mercantilism) of maintaining industrial competitiveness. The problem is that the dollar has continued to depreciate: Which has led to an overall depreciation of the Chinese Yuan. In order to facilitate the peg: China fired the printing presses. Now China is suffering from unsustainable producer, consumer and financial inflation.

Meanwhile, the European Union is suffering from a fiscal contagion that threatens: Athens, Dublin, Lisbon and Madrid. It’s widespread: The strength of the Common Currency has made European goods less competitive.

Since the mid-90s: Europe, much like America, has been running large and growing trade deficits.

In Greece: Those trade deficits have grown to unprecedented proportions. Low interest rates (from the European Central Bank), which were designed to revive the French and German economies, led to financial bubbles in those economies.

Spain’s Housing Bubble, for instance, was much larger than Southern California’s.

The same is the case for Ireland’s Housing Bubble.

To Summarize: Low interest rates and global misallocations in savings and spending led to large European housing bubbles: While the Strong Currency contributed to trade and capital imbalances.

Japan has been a mess since the late 80s and continues to suffer from consumer price deflation and general malaise. Tokyo is the world’s leading debtor in relation to GDP.

International Agencies have been slashing Japan’s Ratings.

While Tokyo’s indebtedness hasn’t become a Greek-style problem: Most of the nation’s governmental obligations are financed from within: As the population continues to age and dwindle - Japan will come to depend on foreign capital. Foreigners will not be as generous to Tokyo as the Japanese citizens have been.

This leaves us (America) with a problem. Should the European contagion spread: It would further undermine confidence in the global financial system. Can we say the Lehman Brothers? This means the financial system would freeze again and consumer and business spending would be dampened. The problem could even spread to our States (California).

Furthermore: Consumer and business spending remains constrained. State and local authorities are implementing European-style Austerity in a bid to balance the books. The problem is that fiscal austerity reduces aggregate demand and contributes to an even weaker economy:

I.e. Even lower tax revenues, more spending on UI Benefits and Social Welfare. Federal Spending, even with the so-called Stimulus and the Bush Tax Cutting Extension and the White House’s Payroll Tax Cutting, won’t be sufficient to offset the declines in state and local spending.

The American Problem is clear: Money is flowing: It’s just not being utilized. Corporate America is sitting on $2 Trillion in Cash and the Banks are sitting on another $1 trillion in “Excess Reserves.”

Until there is more aggregate demand (more spending): Businesses aren't going to spend. Until there is more confidence in the invisible recovery: Banks aren't going to lend.

Supply-Side Economics will only work (reinforce growth) when businesses and individuals are spending and investing:

Just as Monetary Stimulus (By the Federal Reserve) will only work when banks are lending and businesses and consumers are borrowing.

The White House doesn't understand this. The Federal Reserve does understand: However, there is little the Fed can do besides keeping interest rates low and printing even more money. The super-rich on Wall St., which now controls Washington and Corporate America - financial parasites are a different breed than the Industrial Robber Barons - don't care about the overall economy: Because stocks can continue to appreciate and profitability can remain strong: Even if the economy sucks.

[Dunk]

There’s a one-in-three chance the factors will combine to stunt growth from 2013, Roubini said in a June 11 interview in Singapore. Other possible outcomes are “anemic but OK” global growth or an “optimistic” scenario in which the expansion improves.

"There's a one in three chance one of three possible outcomes will come to pass."

:confused:

[bcbm]

let the good times roll

[Blackscare]

Hail Satan.

[Rusty Shackleford]

Apparently, some investors believe there is an 80% chance of Greek default which would create a defaulting spree in Europe. That of course would lead to Spain going downhill which apparently is the big one to watch in Europe.

basically, Greek default may trigger(after a series of events) a recession like what happened with the Leehman Brothers collapse and the global market crisis. all of this ontop of that very same crisis.

source. (http://www.telegraph.co.uk/finance/personalfinance/offshorefinance/8589476/Forex-focus-the-Greek-crisis.html)


i dont know if ill be holding my breath just yet though.

[Kiev Communard]

I would say that capitalism is hardly to be destroyed by the current crisis per se, as historically it climbed out of the worse calamities (i.e. the 1873-1891 Great Recession, 1929-1933 Great Depression, etc.). However, the difference now is that there is no longer any possibility for a large-scale extensive growth (i.e. through colonial expansion like in the end of the 19th century) or for any significant "military Keynesian"-style solution (as it was the case with the Great Depression and WW II, because with the advent of nuclear weaponry the potential for a global war that would eliminate excessive capital capacity and create the new markets through military and non-military innovations).

Therefore I strongly doubt that the attempts at "austerity policies" now pursued by the majority of capitalist government will bear any fruit outside of sharpening class contradictions, as the examples of Greece, Spain, Portugal, and even normally apathetic Great Britain and Wisconsin, show. The problem is, whether the proletarian Left is up to its task of providing an alternative to capitalism in all its forms, or not.

[chegitz guevara]

It is amazing how obstinate capital is being in its refusal to see reality. How can they possibly believe taking money away from consumers will save capitalism?

[bcbm]

It is amazing how obstinate capital is being in its refusal to see reality. How can they possibly believe taking money away from consumers will save capitalism?

most of us are more or less superfluous to the economy as long as the rich and super rich continue to make a mint and spend and invest their money things can chug along on some level

[chegitz guevara]

Not in the long run. The current situation can only continue as long as there is credit, and credit has dried up.

[S.Artesian]

y'know, for one thing, I'm not exactly sure why anyone would think that "the worst is behind us" at this point, given that what originally lead to the present situation in the first place was never remedied. Consider the fact that the US government's solution was to A) funnel trillions of dollars into instutions that rendered financial markets insolvent with crap (a.k.a. funnel trillions of dollars to the primary benefactors of the scam, and not really end the practice at all), and B) re-package the crap and send it overseas. That doesn't really sound like an adequate solution to what is a considerable problem from any standpoint. And that's just derivatives. There's major issues like inflation, loss of confidence in the dollar etc.

That's just my barely educated opinion on the matter. In any case I think the economy isn't looking up.


Non-performing mortgage debt in the US is above 1 trillion dollars. And it's not going to get any better.

We are barely 1/3 of the way through burning off the non-performing debt.

[S.Artesian]

This is Nouriel Roubini, not some fringe economist. This is the guy that more or less predicted the bursting of the housing bubble, the perpetuation of the economic slump, the overall decline of the US economy and more.


I'm not going to be stupid and claim this is the end of capitalism like most people post with these types of articles, but if Roubini's saying it then I think it's safe to say we're in for some rough times ahead, to say the least.

Roubini said the same thing in 2007, 2008, 2009.

Capitalism doesn't fall. It has to be pushed. I see pushing in Greece. Not to many other places.... yet.

All that counts, and to the bourgeoisie, is class struggle. Who gains, maintains power.

[IndependentCitizen]

y'know, for one thing, I'm not exactly sure why anyone would think that "the worst is behind us" at this point, given that what originally lead to the present situation in the first place was never remedied. Consider the fact that the US government's solution was to A) funnel trillions of dollars into instutions that rendered financial markets insolvent with crap (a.k.a. funnel trillions of dollars to the primary benefactors of the scam, and not really end the practice at all), and B) re-package the crap and send it overseas. That doesn't really sound like an adequate solution to what is a considerable problem from any standpoint. And that's just derivatives. There's major issues like inflation, loss of confidence in the dollar etc.

That's just my barely educated opinion on the matter. In any case I think the economy isn't looking up.

Of course it isn't looking up. If we were to take a look from a capitalist perspective, surely Keynesian economics would save the world-wide problem. Instead, many remain to follow the Milton Friedman approach, and believe Fiscal policy must be spend low, tax low, and monetary policy to be as loose as possible. Which means devaluing the U.S dollar (which can cause inflation) and keeping interest rates low. Then blaming government for failing to act, whilst hating on government.

[Rusty Shackleford]

I remember listening to an interview with Roubini on NPR. Basically, this point was established:

the only reason Roubini is listened to on the subject of economics is because he is apocalyptic. There have been others like this before too. The interview was a few months ago when the economy was looking like it was gettign back on track. So the subject was "Hey roubini, can you still be a fear monger even though its not possible anymore?"


Usually, when economists give good news, no one listens because what is good is already happening. People dont like to lose things so they listen to warnings of loss.


NPR Story "Dr. Doom" (http://www.npr.org/2011/05/26/136669781/followers-prefer-it-when-dr-doom-is-gloomy)

[S.Artesian]

Of course it isn't looking up. If we were to take a look from a capitalist perspective, surely Keynesian economics would save the world-wide problem. Instead, many remain to follow the Milton Friedman approach, and believe Fiscal policy must be spend low, tax low, and monetary policy to be as loose as possible. Which means devaluing the U.S dollar (which can cause inflation) and keeping interest rates low. Then blaming government for failing to act, whilst hating on government.


What do you mean failing to act? What do you mean Keynesian economics would solve the world-wide problem?

Governments in the US, UK, France, Spain, Germany, Belgium, Ireland didn't act in 2008, 2009? They didn't run deficits in the attempt to counteract economic contraction?

[Os Cangaceiros]

Yeah, it's not like "small government conservatives" are in power. They're certainly not in Europe. Or the USA, where the more fanatical elements of the fiscal conservative crowd have always and will always remain far away from the machinations of power, despite the paper tiger of the Tea Party. The more pragmatic conservatives realize that touching Medicare/Medicaid or Social Security = political suicide. Those in power have continued to act frantically against the crisis, all the way from some of the first evident cracks (such as Bear Stearns under the Bush administration) to the present day.