Video Interview: Roubini preaches more gloom

Nouriel Roubini, professor at Stern School of Business at New York University and chairman of RGE Monitor, is renowned for having foreseen the current economic malaise a number of years ago. He was scorned at the time by mainstream economists for being a crank, but the same people are now lauding him for his foresight and paying top price for the consulting services of Roubini Global Economics.

Aline van Duyn, US Markets Editor of the Financial Times, has just conducted a three-part video interview with Roubini on topics ranging from the likely duration of the recession to regulation, the demise of more hedge funds and the outlook for stocks, commodities, currencies and bonds.

In Part 1 of the interview, Roubini expects 2009 to be a year of economic stagflation and recession. Whether or not it persists into 2010 will depend on how aggressive and effective policy actions are: monetary and fiscal policy and efforts to recapitalize financial institutions in the US and elsewhere.

He believes there could be a return to positive economic growth by 2010. The European Central Bank should follow the Federal Reserve and cut interest rates further. The US needs a plan to reduce the debt burden to US households. The remedies will cost taxpayers a lot of money.

Click here or on the image below to view the first part of the interview.

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In Part 2, Roubini blames the Federal Reserve, regulators, the greed and arrogance of Wall Street and credit rating agencies for fueling a global asset bubble. The financial system has already changed radically. The times of self-regulation – which means no regulation – are gone. There is always a question of who regulates the regulators.

A significant amount of fiscal resources should be devoted to appropriate regulation. The system needs more regulators and more auditors. This is not the end of capitalism or the end of market economies, but there has to be an appropriate role for governments to make sure the financial system and the real economy are working the way they should.

Click here for Part 2 of the interview.

In Part 3 Roubini expects further financial stress. “A thousand if not more” hedge funds could go bust all at the same time. This means the selling of distressed assets could continue.

Another source of stress is emerging-market economies; there are about a dozen on the verge of a potential financial crisis, such as Latvia, Estonia, Lithuania, Hungary, Bulgaria, Romania, Turkey, Ukraine, Pakistan, Indonesia, Korea, Ecuador, Argentina and Venezuela. Other skeletons could come out of the opaque financial closet, similar to the Bernard Madoff scandal.

The dollar is likely to weaken over the medium term. US and global equities could see declines of another 15 to 20% in the next few months, and a bear market rally will fizzle out. Commodity prices could also fall another 15 to 20%. Cash and cash-like instruments such as government bonds are still the safest bet for the next few months.

Click here for Part 3 of the interview.

An edited transcript of the video can be read here.

Source: Financial Times, December 17, 2008.

Category: BP Cafe, Economy

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8 Responses to “Video Interview: Roubini preaches more gloom”

  1. vic says:

    Roubini is a student of the rain-money-down-from-the-sky school of economics.

    Mish has a good series on members of this school (who go by different names: Keynesians and Chicagoites)

  2. Bruce in Tn says:

    He deserves his cred..but he refers to this as stagflation…we’ve been through that in the early 80′s…most now rightly call this possibility stagdeflation…

    I too, think Mish may be closer to right as far as stimulus and what that will accomplish, but we’ll see.

    I do think the e in p/e ratio will collapse faster than most think..I notice Starbucks has decided not to match 401 k’s this morning…

  3. rww says:

    “He believes there could be a return to positive economic growth by 2010″

    Barry, I think this overstates his view which, to me, sounded pretty dubious about growth in 2010

  4. DP says:

    There’s a program already in place to reduce consumer debt, it is called “repossession”. Sick of hearing this crap. I didn’t go on a world cruise last year. I didn’t buy a BMW or an Escalade. I didn’t invest every penny in the stock market then double-down on margin.

    Seriously, I feel like such an idiot. I could have been living the good life for the past 5 years too instead of quietly paying down my mortgage. Maybe there’s still time to open a new mortgage on this house so I can go stand in line too. What is the point of being financially conservative and trying to do “everything right” even if that means you miss out on some of the gains during the boom years when you wind up with the check at end of it all anyway?

    They made the value of savings worthless in terms of return to solve a crisis bought about by panic because people have no safety net (savings)?! Maybe I just need to get addicted to World of Warcraft or Aardwolf or something, those worlds look better and currency is still worth something there.

  5. Bruce in Tn says:

    Leisman, today, on the awful numbers said this was really not so bad. His thinking was now we have a positive savings rate!

    This journalist is clueless, I am afraid. The peeps are doing what they do in any serious pullback…withdrawing money from investing and taking chances, and saving it. Any college freshman who has taken one economics course realizes this.

    I really do get so tired of CNBC.. And if it weren’t for Santelli and a few other rational peeps, would never turn it on…

    I think the employment numbers will turn very ugly about mid-January.

  6. Bruce in Tn says:

    Zombie Employees….

    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aF_K_4jTKMxE

    Silicon Valley Braces for Firings as Technology Outlook Worsens

  7. Matt says:

    >The times of self-regulation – which means no regulation – are gone.

    I’ll be skeptical of this for a while yet. Especially when I read articles highlighting the fact that banks still aren’t accounting for how they’ve spent the $350B, and how the treasury dept has yet to fully disclose how those funds have been distributed either.

    It just seems all to familiar. I’m not sure those days are entirely gone yet.

  8. Bruce in Tn says:

    More Zombie Employees..yes, the swiss bank has the best method but now even Google is trading cash for trinkets….

    http://www.ft.com/cms/s/0/6c1e1668-d123-11dd-8cc3-000077b07658.html

    Google bonus is smartphone not cash