Friday, September 2, 2011

Nouriel Roubini - 60% Chance of U.S. Recession & We Are in a "Worse Situation" Than 2008

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Some interesting comments on the chances of recession from Nouriel Roubini this morning - the man of course made his name on his calls heading into the 2007-2008 mess. [Aug 20, 2008: Roubini - "Told You So"]  (these calls were not much different than mine, but I am not on TV) :)  With that said, I think it depends where you are on the economic scale in America to declare recession or not - the aggregate numbers (somewhat fudged by statistical adjustments) can say one thing, the reality on Main Street for many is another.  Many never left the Great Recession.

I will disagree with Roubini that we are in a worse situation than in 2008, because back then the type of intervention we saw by central banks and governments was unheard of.  So we were going in blind.  This time around it is old hat, so they won't have any issue throwing the taxpayer under the bus.  See the discussion of QE3... QE1 was a brand new adventure and now we talk about QE as if its an annual must have for the economy.

The talking points on why rescues, interventions, et al are necessary are already old hat - unlike 08.  Essentially the U.S. will continue to debase its currency from here to infinity so it pays back its creditors in much less valuable dollars, and the EU will eventually force the ECB to do the same (notice how Italy and Spain no longer are a 'problem' as long as the ECB buys their bonds) and/or go to Eurobonds.  Or create a mega ESFS I suppose - but its much easier to have the ECB print money down the road since no one politician needs to be responsible for that. Then every major economic power save China will be printing and devaluing - hence the case for gold to the moon.

So worse than 2008?  Only if you like fiat currencies, are responsible and/or are a saver.  But if you fall into any of those categories you've already been treated like trash the past 3-4 years, so what else is new.

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Looks like there was a video on CNBC but in a bid to monetize traffic you have to be a subscriber to get certain content. Boo & hiss.  Hence here is a summary.

  • The world’s developed economies are trapped at the “stall speed” of low growth and need to have greater fiscal stimulus and less austerity to kick-start growh, leading economist Nouriel Roubini told CNBC Friday.
  • Speaking at the Ambrosetti Forum on the shores of Lake Como, near Milan, Roubini said in an interview: “We are in a worse situation than we were in 2008. This time around we have fiscal austerity and banks that are being cautious.”
  • Roubini, known for his bearish views on the world economy, thinks that there is a 60 percent chance of a second recession imminently.  Recent surveys point to slumping business and consumer confidence across the developed world.  Asked if there was still a chance the developed economies could avoid recession, Roubini said: "That’s very optimistic if you look at the data."
  • "The hard economic data (which has come out recently) is all relevant to July while the soft data which has come out is for the future and that’s all moving in the wrong direction," he added. He also believes that a third round of quantitative easing in the US may not have the desired long-term effects, and that further fiscal stimulus across Europe and the US will be needed.
  • The market may rally but unless the real economic data moves with asset prices, then eventually asset prices are going to go," he said. "Last year the economic data was already improving when QE2 was introduced."
  • Europe has come into increasing focus in recent weeks, with some even questioning whether the single currency can survive this crisisRoubini believes there will eventually be an enlargement of the European Financial Stability Facility (EFSF) or a common euro zone bond.
  • He thinks that the euro zone governments should try to weaken the value of the euro. The strength of the currency is worrying some economists because of the potential effect on exports from the euro region. "Unless there is economic growth there will be this problem again,” said Roubini. “Fiscal austerity is negative for growth… (Governments) should work on denominated GDP not just on austerity."
  • He was pessimistic about the UK’s immediate economic future, and believes the British economy is "on the verge of a double dip."



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