Nouriel Roubini Predicts (Surprise!) a Long Recession 25 comments
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The world's most accurate economic forecaster (if not its most popular economist) is now predicting a recession of at least two years.
This interview at Yahoo! Finance contains a few more observations of just what is happening today in both the economy and in financial markets, providing little hope of any improvement anytime soon.
Nouriel believes the recession began in the first quarter of this year and will stretch into early 2010 - at least.
When asked if he had perhaps become too bearish recently and whether there's a possibility that he'll "miss the turn", the following response came:I worry that things will actually get worse than I expect rather than the alternative. Look what's happened to the stock market for the last few days, the inter-bank market, credit spreads, the financial system is even worse than I predicted a few months ago.
I knew there was a systemic financial risk but the speed at which things have been unraveling has been worse than I expected. I don't think right now that any miracle is going to change things.
It's going to be ugly and if we manage it right, we're probably going to have a recession that is severe but not terrible. We'll have a financial crisis that is manageable, but, at this point, I don't think there is much reason to be optimistic I'm afraid.
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The fact that every semblence of "fair play" has been thrown out the window to deal with the situation would indicate that things are closer to the pessimistic view than the optimistic view.
The powers-that-be are making up straws to grasp on a regular basis. That can't be a good thing.
I just can't figure out which ones are which, but Roubini has come as close to any in recent times in accurately assessing economic trends. I'd pick him if I only had one choice.
A few months ago Roubini said that he expects losses to be $1.5 - $2 Trillion. I think he is unwilling to raise that number publicly, but his predictions are becoming more dire.
I'm a layman, so if creds mean anything to you then I don't know crap. But based on history, if our ultimate losses from this debacle go into the $3-5 Trillion range I think it's "global economic thermonuclear meltdown". And isn't that exactly the way the politicians and CB's are acting?
The fact remains that debtholders are going to suffer very real and very deep losses, either from default or from inflation. Pick one.
Default means that money doesn't buy anything, and foreigners become your landlords. Ask Iceland (in October in the Northern Hemisphere, for Christ's sake). Inflation means that money buys very little, savers are punished (punishing capital formation), and foreigners become your landlords.
Perfect indicator that we should be looking for buys in equities.
Yom Kippur traditionally marks the end of the slowest and most downside biased calendar period. Add in a massive number of stocks that gapped down below previous lows and well below second and in some cases third deviation from mean and we have a short term signal that fits nicely with the long term oversold. -adgoose
He predicted that home values would need to correct.
He predicted that bond insurers would need to be bailed out.
He predicted that the prime-brokerage model of the investment bank is unsustainable to the point that he thought NO investment banks would be left.. I remember chuckling in class when he told us that Goldman Sachs wouldn't survive in its current state... a week later, GS and MS changed their status from investment banks to bank holding co's.
He believes that TARP isn't enough because (1) It doesn't renegotiate debt for the homeowner and (2) because the government is bailing out the banks without recapitalizing them, so they still refuse to lend.
He accurately predicted that the fed would be forced to buy Commercial paper after a run on CP markets...
In a consumption fueled economy (70% of our GDP), decreased consumption is going to lead to negative GDP growth on paper and visible effects for the American economy.
This guy has been right 99% of the time and well in advance, and I totally believe him when he says that he is afraid of a larger draw down than the one he has predicted.
Ultimately buffet was right when he referred to derivatives as weapons of financial mass destruction. These casino bet investments that were totally unregulated and heralded by greenspan as risk spreaders are precisely the opposite. They are a pile of dominoes and the first ones have already been toppled so it will be impossible to stop the rest in this downward repeating spiral. Sorry if I sound pessimistic but the fact is there is no way out of this one as they are spread through the global economies. Anyone with a true understanding of these financial devices should agree. Time will prove this correct. There is not enough money or credit available to defuse or neutralise the derivative problem. The paltry billions we witness the govts throwing at this problem are comparable to pissing on a forest fire in an attempt to put it out.
Too many people have written about "the subprime problem" and "the Alt-A problem" and "the derivatives problem" and on and on... none of these asset classes is a problem at all. Actual losses in a typical batch of mixed subprime mortgages might be 5% - a painful loss, to be sure, but hardly the stuff of doom and gloom. This is and has always been a leverage problem, which has only started becoming clear to pundits in the past few weeks. The solution in the derivatives space, as everywhere else, is to increase margin requirements, preferably to at least 50% as it is for stocks. This same requirement should apply to all assets at all trading and lending institutions without regard for perceived risk. Because the true worst-case risk on ANY asset is a loss of 100%. That is true whether the asset is a Treasury bill, a mortgage, a junk bond, or a piece of fine art. The so-called risk-based capital requirements strategy only evaluates the probability of loss and the expected severity of loss; that is, it increases the time between extreme systemic risk events but does not eliminate them. Only a risk-management strategy that accounts properly for the fact that all assets can experience 100% losses and, in the fullness of time, will, can prevent these problems from occurring. Leverage must be restrained, and that means shrinking the money supply. Risk-taking with one's own money need not be restrained at all, and must be encouraged if sustainable growth is to occur.
Higher margin requirements. Sound money - preferably circulating gold and silver. Equity financing, not debt. These strategies worked for centuries, and every attempt to abandon them has ended in tears. Perhaps this is just another instance of every generation needing to learn the same lesson again.
I clicked on "your" web site and it took me to LewRockwell.com.
No wonder you got smarts!
As an American, I absolutely, positively concur with you. Put realists like Roubini in charge of the Fed, he won't want to, but that is precisely the reason he must.
If the environment was not supportive of Roubini's forecasts, then he would be just another voice in the woods and no one would be listening to him.
If Roubini is making money on the present situation, the more power to him.
Of coure Roubini is correct most of the time because he is betting on a sure horse. This economy is going to fail sooner or later. You dont need to be a rocket scientist to figure that one out.
Therefore i say thedollar will soon loose its reserve currency status and a new curency of basket of currencies will take its place, that USA will within 5 years be a true third world nation under fascist dictatorship.
Hoorah hoorah, give me a friggin nobel prize for economics! Its as plain as the nose on your face. the system is broke. end of story. Duh!