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Roubini tells us some harsh truths about the present and future of the world economy

9 July 2012

Summary:  In this July 7  interview on Bloomberg TV, Nouriel Roubini tells us how our folly has brought us to the brink of another economic downturn. Perhaps worse than the crash in Winter 2008, since we’re in many ways weaker than we were then.  We’ve wasted the time bought us by the fiscal and monetary stimulus programs. Readers of the FM website have heard all this before. See the links at the end for more information.

http://www.dailymotion.com/video/xs197l_roubini-says-2013-storm-may-surpass-2008-crisis_news

Excerpt (transcript from Zero Hedge):

There are more conflicts of interest today than four years ago. The banks that were too big to fail and now they are even bigger. Things are worse – not better.

… Nothing has changed since the financial crisis. The incentives of the banks is to cheat – doing things that are either illegal or immoral. The only way to avoid that is to break up these financial supermarkets. There are no chinese walls and massive conflicts of interest.

… There should be criminal sanctions. Nobody has gone to jail since the financial crisis. The banks, they do things that are illegal and at best they slap on them a fine. If some people end up in jail, maybe that will teach a lesson to somebody. Or somebody hanging in the streets.


.

What happens next is in our hands.

… By 2013, the ability of policy makers to kick the can down the road is going to run out of steam, and in the euro zone the slow motion train wreck will become a fast motion train wreck. The US seems close to stall-speed and an economic recession. The landing of China is becoming harder and EM nations (and BRICs) are sharply slowing down. And finally the potential for war between Israel, the US, and Iran – which will double oil prices overnight.

… Worse because like 2008 you will have an economic and financial crisis but unlike 2008, you are running out of policy bullets. In 2008, you could cut rates; do QE1, QE2; you could do fiscal stimulus; you could backstop/ringfence/guarantee banks and everybody else. Today, more QEs are becoming less and less effective because the problems are of solvency not liquidity. Fiscal deficits are already so large and you cannot bail out the banks because 1) there is a political opposition to it; and 2) governments are near-insolvent – they cannot bailout themselves let alone their banks. The problem is that we are running out of policy rabbits to pull out of the hat!

More by Roubini about the state of the world economy

Posts about the world economy

  1. The end of the post-WWII world is not the end of the world, 21 May 2012
  2. The unseen but perhaps decisive grand alignment of the nations!, 22 May 2012
  3. Which nations will make wise decisions under stress? Who will screw-up and fail?, 23 May 2012
  4. The global economy is sitting on a volcano. What happens next?, 1 June 2012
  5. It’s the end of the world we’ve known since WWII (updated status report), 29 June 2012

Posts about the US economy

  1. A status report about the US economy (we party so hard we cannot hear the alarms ringing), 27 March 2012
  2. About America’s economic recovery: the good news and the bad, 1 May 2012
  3. About the May jobs report – a few new jobs, bought at great cost, 1 June 2012
  4. The Titanic’s lessons for us about the coming economic crisis, 4 June 2012
  5. America is rich and powerful because we can borrow. Will this debt build a stronger America?, 5 June 2012
  6. US economic update. Everything that follows is a result of what you see here., 8 June 2012
  7. Three important things to know about today’s employment report, 6 July 2012
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8 Comments leave one →
  1. 9 July 2012 1:50 pm

    Dated (but good analysis) news from NR. His speculations on 2013 place him back in the Dr. Doom campground.

    At least the British seem fed up with the flagrant criminality of the Fin Sector’s biggest banks. While Americans toddle along, seeming;y oblivious and uncaring and just about Clueless!
    Have you ever seen a more pitiful Presidential election season? And Congress…..my goodness.

    About the best “comment” I can come up with as this Post deserves some feedback. Thx FM

    Breton

    Like

    • 9 July 2012 1:58 pm

      Some relevant articles from the FM Twitter feed today:

      About how American elites live free from the law: “Rules of American justice“, Glenn Greenwald, Salon, 9 July 2012 — “An American banker is shocked to encounter accountability for his acts in Britain because the U.S. provides none”

      Do campaigns really change voters’ minds?“, Washington Post, 6 July 2012 — No, but the bribes given during elections change government actions. It’s an insane system, but works for our ruling elites.

      Like

  2. Unna permalink
    9 July 2012 9:24 pm

    There are some differences between the two candidates but they seem mostly forced as the result of differences in the demographics each candidate must appeal to in order to retain support. So there’s an air of suspended reality about the whole affair. NR’s interview only points out the obvious.

    In regards to the lack of prosecutions, can anyone imagine either candidate making an issue out of the other’s unwillingness to prosecute TBTF bankers on Wall Street? Another indication of the inability of the Republic’s political system to address and solve real and serious problems.

    .

    Like

  3. Thomas More permalink
    11 July 2012 1:54 am

    William S. Lind has remarked that when a society proves unable to address serious chronic problems and the situation snowballs into a crisis, regime change occurs. Meaning: the entire political-social system tends to undergo an upheaval. Viz., France in the 1780s, Britain under Cromwell in the 1640s, Europe at the end of WW I and WW II, and so on.

    I wonder what FM thinks of the chances of a major upheaval in America’s social-political system are if we get financial collapse worse than the 2007-2008 crisis in the near future?

    Like

    • 11 July 2012 4:32 am

      “chances of a major upheaval in America’s social-political system are if we get financial collapse worse than the 2007-2008 crisis in the near future”

      We have to be more granular about the situation for it to have any use.
      The comparison is Fall 2008 – Spring 2009 (not 2007-08; many people disagree with me in Spring 2008, saying we were not in a recession).
      That crisis was similar to 1929-30, but the policy response in Spring 2009 prevented a depression, so that the actual damage was minimal (as such things go).

      So the question concerns the magnitude and duration of the downturn. In many respects we’re in better shape than then.

      • The banks are in better shape, are already defacto government wards.
      • A large fraction of the weak debtors in the private sector have already defaulted on their loans.
      • Auto mfg and housing construction the big cyclical sectors; they’re already depressed & so have less potential to crash.
      • Much of the business sector has reduced debt, cut employment, and increased cash.
      • Most important, unlike 2008 the public and private sectors are alert and ready to act.

      It’s difficult to describe how a crash might occur. That doesn’t mean it cannot happen, of course.

      How might US society — esp our social cohesion — withstand such a test? It’s not knowable, especially without knowing the depth or duration of the crisis. However, there are hints that we’re more resilient than doomsters believe.

      • The US Army and Marines have withstood the stress of a decade of war far better than many expected. No Vietnam syndrome there.
      • The PIIGS nations of Europe have withstood depression like conditions for several years with as yet no signs of disintegration — social or political.

      Like

    • Greg Connolly permalink
      11 July 2012 11:07 am

      Hints at resiliencies?
      Already wards of the State and already depressed in Mfg and Hsg….and that is good? As in no lower to fall?
      All your bullet points can be fairly responded to with a strong “maybe”.

      We may yet see.
      Maybe.

      Breton

      Like

Trackbacks

  1. Prison Planet.com » Roubini: My ‘Perfect Storm’ Scenario Is Unfolding Now « CITIZEN.BLOGGER.1984+ GUNNY.G BLOG.EMAIL
  2. NOURIEL ROUBINI: A “PERFECT STORM” IS COMING / Banks / Dr. Pinna

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