"Karl Marx had it right. At some point capitalism can self-destroy itself. That's because you can not keep on shifting income from labor to capital without not having an excess capacity and a lack of aggregate demand. We thought that markets work. They are not working."
Showing posts with label Nouriel Roubini. Show all posts
Showing posts with label Nouriel Roubini. Show all posts
Wednesday, August 31, 2011
Monday, March 14, 2011
Oil Shock: $150-200 a barrel?
From Forbes.com:
“Oil price shocks have led to US recessions in 1974-75, 1980, 1990, 2001 and 2008-2009. 3 of these were caused by Mid East political shocks,” notoriously bearish economist Nouriel Roubini wrote on his Twitter account at the end of February.
Last Wednesday, he made another bold prediction: “If troubles spread to other countries such as Bahrain and Saudi Arabia, this could push oil prices up to $140 to $150 per barrel, which could trigger a double-dip recession in the periphery of Europe and the U.K.”
While the predicted oil price may seem shock-worthy, the correlation of oil prices and recession should not. As James Hamilton, an Economics Professor at the University of California, San Diego, wrote last year, rising oil prices are a potential retardant to economic recovery, both in the automotive sector as well as across consumer spending in general...
It seems that plenty of traders agree with Roubini’s bearish outlook. A chart published today by Bloomberg shows a sharp increase in traders buying call options on $200/barrel oil futures, which expire on May 17th...
Roubini Predicts Oil Will Hit $150 Per Barrel, Traders Betting On $200
Mar. 7 2011
CHRIS BARTH
http://blogs.forbes.com/chrisbarth/2011/03/07/roubini-predicts-oil-will-hit-150-per-barrel-traders-betting-on-200
“Oil price shocks have led to US recessions in 1974-75, 1980, 1990, 2001 and 2008-2009. 3 of these were caused by Mid East political shocks,” notoriously bearish economist Nouriel Roubini wrote on his Twitter account at the end of February.
Last Wednesday, he made another bold prediction: “If troubles spread to other countries such as Bahrain and Saudi Arabia, this could push oil prices up to $140 to $150 per barrel, which could trigger a double-dip recession in the periphery of Europe and the U.K.”
While the predicted oil price may seem shock-worthy, the correlation of oil prices and recession should not. As James Hamilton, an Economics Professor at the University of California, San Diego, wrote last year, rising oil prices are a potential retardant to economic recovery, both in the automotive sector as well as across consumer spending in general...
It seems that plenty of traders agree with Roubini’s bearish outlook. A chart published today by Bloomberg shows a sharp increase in traders buying call options on $200/barrel oil futures, which expire on May 17th...
Roubini Predicts Oil Will Hit $150 Per Barrel, Traders Betting On $200
Mar. 7 2011
CHRIS BARTH
http://blogs.forbes.com/chrisbarth/2011/03/07/roubini-predicts-oil-will-hit-150-per-barrel-traders-betting-on-200
Saturday, May 8, 2010
Nouriel Roubini: forget sub-prime mortgages
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7675641/Nouriel-Roubini-forget-sub-prime-mortgages.-Its-the-sub-prime-financial-system-we-need-to-fix.html
Nouriel Roubini: forget sub-prime mortgages. It's the sub-prime financial system we need to fix
Here's an exclusive extract from Nouriel Roubini's new book.
04 May 2010
For the past half century, academic economists, Wall Street traders, and everyone in between have been led astray by fairy tales about the wonders of unregulated markets and the limitless benefits of financial innovation. The crisis dealt a body blow to that belief system, but nothing has replaced it.
That’s all too evident in the timid reform proposals currently being considered in the United States and other advanced economies. Even though they have suffered the worst financial crisis in generations, many countries have shown a remarkable reluctance to inaugurate the sort of wholesale reform necessary to bring the financial system to heel. Instead, people talk of tinkering with the financial system, as if what just happened was caused by a few bad mortgages.
Throughout most of 2009, Goldman Sachs chief executive Lloyd Blankfein repeatedly tried to quash calls for sweeping regulation of the financial system. In speeches and in testimony before Congress, he begged his listeners to keep financial innovation alive and “resist a response that is solely designed to protect us against the 100-year storm”.
That’s ridiculous. What we’ve experienced wasn’t some crazy once-in-a-century event. Since its founding, the United States has suffered from brutal banking crises and other financial disasters on a regular basis. Throughout the 19th and early 20th centuries, crippling panics and depressions hit the nation again and again. The crisis was less a function of sub-prime mortgages than of a sub-prime financial system. Thanks to everything from warped compensation structures to corrupt ratings agencies, the global financial system rotted from the inside out. The financial crisis merely ripped the sleek and shiny skin off what had become, over the years, a gangrenous mess.
The road to recovery will be a long one. For starters, traders and bankers must be compensated in a way that brings their interests in alignment with those of shareholders. That doesn’t necessarily mean less compensation, even if that’s desirable for other reasons; it merely means that employees of financial firms should be paid in ways that encourage them to look out for the long-term interests of the firms.
Securitisation must be overhauled as well. Simplistic solutions, such as asking banks to retain some of the risk, won’t be enough; far more radical reforms will be necessary. Securitisation must have far greater transparency and standardisation, and the products of the securitisation pipeline must be heavily regulated. Most important of all, the loans going into the securitisation pipeline must be subject to far greater scrutiny. The mortgages and other loans must be of high quality, or if not, they must be very clearly identified as less than prime and therefore risky.
Some people believe that securitisation should be abolished. That’s short-sighted: properly reformed, securitisation can be a valuable tool that reduces, rather than exacerbates, systemic risk. But in order for it to work, it must operate in a far more transparent and standardised fashion than it does now.
Absent this shift, accurately pricing these securities, much less reviving the market for securitisation, is next to impossible. What we need are reforms that deliver the peace of mind that the Food and Drug Administration (FDA) did when it was created.
Let’s begin with standardisation. At the present time, there is little standardisation in the way asset-backed securities are put together. The “deal structures” (the fine print) can vary greatly from offering to offering. Monthly reports on deals (“monthly service performance reports”) also vary greatly in level of detail provided. This information should be standardised and pooled in one place.
It could be done through private channels or, better, under the auspices of the federal government. For example, the Securities and Exchange Commission (SEC) could require anyone issuing asset-backed securities to disclose a range of standard information on everything from the assets or original loans to the amounts paid to the individuals or institutions that originated the security.
Precisely how this information is standardised doesn’t matter, so long as it is done: we must have some way to compare these different kinds of securities so they can be accurately priced. At the present time, we are stymied by a serious apples-and-oranges problem: the absence of standardisation makes comparing them with any accuracy impossible. Put differently, the current system gives us no way to quantify risk; there’s far too much uncertainty.
Standardisation, once achieved, would inevitably create more liquid and transparent markets for these securities. That’s well and good, but a few caveats also come to mind. First, bringing some transparency to plain-vanilla asset-backed securities is relatively easy; it’s more difficult to do so with preposterously complicated securities like Collateralised Debt Obligations (CDOs), much less chimerical creations like the CDO2 and the CDO3.
Think for a moment about what goes into a typical CDO. Start with a thousand different individual loans, be they commercial mortgages, residential mortgages, auto loans, credit card receivables, small business loans, student loans, or corporate loans. Package them together into an asset-backed security (ABS). Take that ABS and combine it with 99 other ABSs so that you have 100 of them. That’s your CDO. Now take that CDO and combine it with another 99 different CDOs, each of which has its own unique mix of ABSs and underlying assets. Do the maths: in theory, the purchaser of this CDO is supposed to somehow get a handle on the health of 10m underlying loans. Is that going to happen? Of course not.
For that reason, securities like CDOs — which now go by the nickname of Chernobyl Death Obligations — must be heavily regulated if not banned.
In their present incarnation, they are too estranged from the assets that give them value and are next to impossible to standardise. Thanks in large part to their individual complexity, they don’t transfer risk so much as mask it under the cover of esoteric and ultimately misleading risk-management strategies.
In fact, the curious career of CDOs and other toxic securities brings to mind another, less celebrated acronym: GIGO, or “garbage in, garbage out”.
Or to use a sausage-making metaphor: if you put rat meat and trichinosis-laced pig parts into your sausage, then combine it with lots of other kinds of sausage (each filled with equally nasty stuff), you haven’t solved the problem; you still have some pretty sickening sausage.
The most important angle of securitisation reform, then, is the quality of the ingredients. In the end, the problem with securitisation is less that the ingredients were sliced and diced beyond recognition than that much of what went into these securities was never very good in the first place.
Put differently, the problem with originate-and-distribute lies less with the distribution than with the origination. What matters most is the creditworthiness of the loans issued in the first place.
Equally comprehensive reforms must be imposed on the kinds of deadly derivatives that blew up in the recent crisis. So-called over-the-counter derivatives — better described as under-the-table — must be hauled into the light of day, put on central clearing houses and exchanges and registered in databases; their use must be appropriately restricted. Moreover, the regulation of derivatives should be consolidated under a single regulator.
The ratings agencies must also be collared and forced to change their business model. That they now derive their revenue from the firms they rate has created a massive conflict of interests. Investors should be paying for ratings on debt, not the institutions that issue the debt. Nor should the rating agencies be permitted to sell “consulting” services on the side to issuers of debt; that creates another conflict of interests. Finally, the business of rating debt should be thrown open to far more competition. At the present time, a handful of firms have far too much power.
Even more radical reforms must be implemented as well. Certain institutions considered too big to fail must be broken up, including Goldman Sachs and Citigroup. But many other, less visible, firms deserve to be dismantled as well. Moreover, Congress should resurrect the Glass-Steagall banking legislation that it repealed a decade ago but also go further, updating it to reflect the far greater challenges posed not only by banks but by the shadow banking system.
These reforms are sensible, but even the most carefully conceived regulations can go awry. Financial firms habitually engage in arbitrage, moving their operations from a well-regulated domain to one outside government purview. The fragmented, decentralised state of regulation in the United States has exacerbated this problem. So has the fact that the profession of financial regulator has, until very recently, been considered a dead-end, poorly-paid job.
Most of these problems can be addressed. Regulations can be carefully crafted with an eye toward the future, closing loopholes before they open. That means resisting the understandable impulse to apply regulations only to a select class of firms — the too-big-too-fail institutions, for example — and instead imposing them across the board, in order to prevent financial intermediation from moving to smaller, less-regulated firms.
Likewise, regulation can and should be consolidated in the hands of fewer, more powerful regulators. And most important of all, regulators can be compensated in a manner befitting the key role they play in safeguarding our financial security.
Central banks arguably have the most power — and the most responsibility — to protect the financial system. In recent years, they have performed poorly. They have failed to enforce their own regulation, and worse, they have done nothing to prevent speculative manias from spinning out of control.
If anything, they have fed those bubbles, and then, as if to compensate, have done everything in their power to save the victims of the inevitable crash. That’s inexcusable. In the future, central banks must proactively use monetary policy and credit policy to rein in and tame speculative bubbles.
Central banks alone can’t handle the challenges facing the global economy. Large and destabilising global current account imbalances threaten long-term economic stability, as does the risk of a rapidly depreciating dollar; addressing both problems requires a new commitment to international economic governance. The International Monetary Fund (IMF) must be strengthened and given the power to supply the makings of a new international reserve currency.
And how the IMF governs itself must be seriously reformed. For too long, a handful of smaller, ageing economies have dominated IMF governance. Emerging economies must be given their rightful place at the table, a move reinforced by the rising power and influence of the G20 group.
All of these reforms will help reduce the incidence of crises, but they will not drive them to extinction. As the economist Hyman Minsky once observed: “There is no possibility that we can ever set this right once and for all; instability, put to test by one set of reforms, will, after time, emerge in a new guise.” Crises cannot be abolished; like hurricanes, they can only be managed and mitigated.
Paradoxically, this unsettling truth should give us hope. In the depths of the Great Depression, politicians and policy-makers embraced reforms of the financial system that laid the foundation for nearly 80 years of stability and security. It inevitably unravelled, but 80 years is a long time — a lifetime.
As we contemplate the future of finance from the mire of our own recent Great Recession, we could do well to try to emulate that achievement. Nothing lasts forever, and crises will always return. But they need not loom so large; they need not overshadow our economic existence.
If we strengthen the levees that surround our financial system, we can weather crises in the coming years. Though the waters may rise, we will remain dry. But if we fail to prepare for the inevitable hurricanes — if we delude ourselves, thinking that our antiquated defences will never be breached again — we face the prospect of many future floods.
Nouriel Roubini: forget sub-prime mortgages. It's the sub-prime financial system we need to fix
Here's an exclusive extract from Nouriel Roubini's new book.
04 May 2010
For the past half century, academic economists, Wall Street traders, and everyone in between have been led astray by fairy tales about the wonders of unregulated markets and the limitless benefits of financial innovation. The crisis dealt a body blow to that belief system, but nothing has replaced it.
That’s all too evident in the timid reform proposals currently being considered in the United States and other advanced economies. Even though they have suffered the worst financial crisis in generations, many countries have shown a remarkable reluctance to inaugurate the sort of wholesale reform necessary to bring the financial system to heel. Instead, people talk of tinkering with the financial system, as if what just happened was caused by a few bad mortgages.
Throughout most of 2009, Goldman Sachs chief executive Lloyd Blankfein repeatedly tried to quash calls for sweeping regulation of the financial system. In speeches and in testimony before Congress, he begged his listeners to keep financial innovation alive and “resist a response that is solely designed to protect us against the 100-year storm”.
That’s ridiculous. What we’ve experienced wasn’t some crazy once-in-a-century event. Since its founding, the United States has suffered from brutal banking crises and other financial disasters on a regular basis. Throughout the 19th and early 20th centuries, crippling panics and depressions hit the nation again and again. The crisis was less a function of sub-prime mortgages than of a sub-prime financial system. Thanks to everything from warped compensation structures to corrupt ratings agencies, the global financial system rotted from the inside out. The financial crisis merely ripped the sleek and shiny skin off what had become, over the years, a gangrenous mess.
The road to recovery will be a long one. For starters, traders and bankers must be compensated in a way that brings their interests in alignment with those of shareholders. That doesn’t necessarily mean less compensation, even if that’s desirable for other reasons; it merely means that employees of financial firms should be paid in ways that encourage them to look out for the long-term interests of the firms.
Securitisation must be overhauled as well. Simplistic solutions, such as asking banks to retain some of the risk, won’t be enough; far more radical reforms will be necessary. Securitisation must have far greater transparency and standardisation, and the products of the securitisation pipeline must be heavily regulated. Most important of all, the loans going into the securitisation pipeline must be subject to far greater scrutiny. The mortgages and other loans must be of high quality, or if not, they must be very clearly identified as less than prime and therefore risky.
Some people believe that securitisation should be abolished. That’s short-sighted: properly reformed, securitisation can be a valuable tool that reduces, rather than exacerbates, systemic risk. But in order for it to work, it must operate in a far more transparent and standardised fashion than it does now.
Absent this shift, accurately pricing these securities, much less reviving the market for securitisation, is next to impossible. What we need are reforms that deliver the peace of mind that the Food and Drug Administration (FDA) did when it was created.
Let’s begin with standardisation. At the present time, there is little standardisation in the way asset-backed securities are put together. The “deal structures” (the fine print) can vary greatly from offering to offering. Monthly reports on deals (“monthly service performance reports”) also vary greatly in level of detail provided. This information should be standardised and pooled in one place.
It could be done through private channels or, better, under the auspices of the federal government. For example, the Securities and Exchange Commission (SEC) could require anyone issuing asset-backed securities to disclose a range of standard information on everything from the assets or original loans to the amounts paid to the individuals or institutions that originated the security.
Precisely how this information is standardised doesn’t matter, so long as it is done: we must have some way to compare these different kinds of securities so they can be accurately priced. At the present time, we are stymied by a serious apples-and-oranges problem: the absence of standardisation makes comparing them with any accuracy impossible. Put differently, the current system gives us no way to quantify risk; there’s far too much uncertainty.
Standardisation, once achieved, would inevitably create more liquid and transparent markets for these securities. That’s well and good, but a few caveats also come to mind. First, bringing some transparency to plain-vanilla asset-backed securities is relatively easy; it’s more difficult to do so with preposterously complicated securities like Collateralised Debt Obligations (CDOs), much less chimerical creations like the CDO2 and the CDO3.
Think for a moment about what goes into a typical CDO. Start with a thousand different individual loans, be they commercial mortgages, residential mortgages, auto loans, credit card receivables, small business loans, student loans, or corporate loans. Package them together into an asset-backed security (ABS). Take that ABS and combine it with 99 other ABSs so that you have 100 of them. That’s your CDO. Now take that CDO and combine it with another 99 different CDOs, each of which has its own unique mix of ABSs and underlying assets. Do the maths: in theory, the purchaser of this CDO is supposed to somehow get a handle on the health of 10m underlying loans. Is that going to happen? Of course not.
For that reason, securities like CDOs — which now go by the nickname of Chernobyl Death Obligations — must be heavily regulated if not banned.
In their present incarnation, they are too estranged from the assets that give them value and are next to impossible to standardise. Thanks in large part to their individual complexity, they don’t transfer risk so much as mask it under the cover of esoteric and ultimately misleading risk-management strategies.
In fact, the curious career of CDOs and other toxic securities brings to mind another, less celebrated acronym: GIGO, or “garbage in, garbage out”.
Or to use a sausage-making metaphor: if you put rat meat and trichinosis-laced pig parts into your sausage, then combine it with lots of other kinds of sausage (each filled with equally nasty stuff), you haven’t solved the problem; you still have some pretty sickening sausage.
The most important angle of securitisation reform, then, is the quality of the ingredients. In the end, the problem with securitisation is less that the ingredients were sliced and diced beyond recognition than that much of what went into these securities was never very good in the first place.
Put differently, the problem with originate-and-distribute lies less with the distribution than with the origination. What matters most is the creditworthiness of the loans issued in the first place.
Equally comprehensive reforms must be imposed on the kinds of deadly derivatives that blew up in the recent crisis. So-called over-the-counter derivatives — better described as under-the-table — must be hauled into the light of day, put on central clearing houses and exchanges and registered in databases; their use must be appropriately restricted. Moreover, the regulation of derivatives should be consolidated under a single regulator.
The ratings agencies must also be collared and forced to change their business model. That they now derive their revenue from the firms they rate has created a massive conflict of interests. Investors should be paying for ratings on debt, not the institutions that issue the debt. Nor should the rating agencies be permitted to sell “consulting” services on the side to issuers of debt; that creates another conflict of interests. Finally, the business of rating debt should be thrown open to far more competition. At the present time, a handful of firms have far too much power.
Even more radical reforms must be implemented as well. Certain institutions considered too big to fail must be broken up, including Goldman Sachs and Citigroup. But many other, less visible, firms deserve to be dismantled as well. Moreover, Congress should resurrect the Glass-Steagall banking legislation that it repealed a decade ago but also go further, updating it to reflect the far greater challenges posed not only by banks but by the shadow banking system.
These reforms are sensible, but even the most carefully conceived regulations can go awry. Financial firms habitually engage in arbitrage, moving their operations from a well-regulated domain to one outside government purview. The fragmented, decentralised state of regulation in the United States has exacerbated this problem. So has the fact that the profession of financial regulator has, until very recently, been considered a dead-end, poorly-paid job.
Most of these problems can be addressed. Regulations can be carefully crafted with an eye toward the future, closing loopholes before they open. That means resisting the understandable impulse to apply regulations only to a select class of firms — the too-big-too-fail institutions, for example — and instead imposing them across the board, in order to prevent financial intermediation from moving to smaller, less-regulated firms.
Likewise, regulation can and should be consolidated in the hands of fewer, more powerful regulators. And most important of all, regulators can be compensated in a manner befitting the key role they play in safeguarding our financial security.
Central banks arguably have the most power — and the most responsibility — to protect the financial system. In recent years, they have performed poorly. They have failed to enforce their own regulation, and worse, they have done nothing to prevent speculative manias from spinning out of control.
If anything, they have fed those bubbles, and then, as if to compensate, have done everything in their power to save the victims of the inevitable crash. That’s inexcusable. In the future, central banks must proactively use monetary policy and credit policy to rein in and tame speculative bubbles.
Central banks alone can’t handle the challenges facing the global economy. Large and destabilising global current account imbalances threaten long-term economic stability, as does the risk of a rapidly depreciating dollar; addressing both problems requires a new commitment to international economic governance. The International Monetary Fund (IMF) must be strengthened and given the power to supply the makings of a new international reserve currency.
And how the IMF governs itself must be seriously reformed. For too long, a handful of smaller, ageing economies have dominated IMF governance. Emerging economies must be given their rightful place at the table, a move reinforced by the rising power and influence of the G20 group.
All of these reforms will help reduce the incidence of crises, but they will not drive them to extinction. As the economist Hyman Minsky once observed: “There is no possibility that we can ever set this right once and for all; instability, put to test by one set of reforms, will, after time, emerge in a new guise.” Crises cannot be abolished; like hurricanes, they can only be managed and mitigated.
Paradoxically, this unsettling truth should give us hope. In the depths of the Great Depression, politicians and policy-makers embraced reforms of the financial system that laid the foundation for nearly 80 years of stability and security. It inevitably unravelled, but 80 years is a long time — a lifetime.
As we contemplate the future of finance from the mire of our own recent Great Recession, we could do well to try to emulate that achievement. Nothing lasts forever, and crises will always return. But they need not loom so large; they need not overshadow our economic existence.
If we strengthen the levees that surround our financial system, we can weather crises in the coming years. Though the waters may rise, we will remain dry. But if we fail to prepare for the inevitable hurricanes — if we delude ourselves, thinking that our antiquated defences will never be breached again — we face the prospect of many future floods.
Friday, May 7, 2010
Greece is just the "tip of the iceberg” of a sovereign debt crisis
http://www.telegraph.co.uk/finance/economics/7648775/Greece-is-just-the-tip-of-the-iceberg-Nouriel-Roubini-warns.html
Greece is just the "tip of the iceberg” of a sovereign debt crisis that has the potential to derail a global recovery, Nouriel Roubini has warned.
29 Apr 2010
Professor Roubini, the New York-based academic who was one of the few to anticipate the scale of the financial crisis, told a panel in California that the buildup of debt is likely to lead to countries defaulting or resorting to inflation to ease the burden on their populations.
“While today markets are worried about Greece, Greece is just the tip of the iceberg,” Roubini told the Milken Institute Global Conference in Beverly Hills, California. "The thing I worry about is the buildup of sovereign debt.”
Britain 'risks Greek-style crisis'
Although Greece's misreporting of the scale of its own debt has helped shatter investors' faith, the southern European country is not alone in its struggle. The depth of the property bust in both Spain and Portugal has prompted the ratings agency Standard & Poor's to downgrade the creditworthiness of both.
European leaders, led by German chancellor Angela Merkel, the International Monetary Fund and Greece's leaders are scrambling to approve a bail-out for Greece as financial markets drive its borrowing costs higher.
"The ripple effects across the market are now more visible," said Ciaran O'Hagan, an analyst at Societe Generale. "Contagion is amplifying."
Italy's sale of up to €8bn euros of debt today will, according to analysts, provide a good gauge of whether the concerns about Greece and Portugal are spreading to other members of the Eurozone.
/
Greece is just the "tip of the iceberg” of a sovereign debt crisis that has the potential to derail a global recovery, Nouriel Roubini has warned.
29 Apr 2010
Professor Roubini, the New York-based academic who was one of the few to anticipate the scale of the financial crisis, told a panel in California that the buildup of debt is likely to lead to countries defaulting or resorting to inflation to ease the burden on their populations.
“While today markets are worried about Greece, Greece is just the tip of the iceberg,” Roubini told the Milken Institute Global Conference in Beverly Hills, California. "The thing I worry about is the buildup of sovereign debt.”
Britain 'risks Greek-style crisis'
Although Greece's misreporting of the scale of its own debt has helped shatter investors' faith, the southern European country is not alone in its struggle. The depth of the property bust in both Spain and Portugal has prompted the ratings agency Standard & Poor's to downgrade the creditworthiness of both.
European leaders, led by German chancellor Angela Merkel, the International Monetary Fund and Greece's leaders are scrambling to approve a bail-out for Greece as financial markets drive its borrowing costs higher.
"The ripple effects across the market are now more visible," said Ciaran O'Hagan, an analyst at Societe Generale. "Contagion is amplifying."
Italy's sale of up to €8bn euros of debt today will, according to analysts, provide a good gauge of whether the concerns about Greece and Portugal are spreading to other members of the Eurozone.
/
Friday, December 4, 2009
The Critical Unraveling of U.S. Society
http://ampedstatus.com/the-critical-unraveling-of-us-society
The Critical Unraveling of U.S. Society
Wednesday, November 18th, 2009
Filed under Activism, Economy, Environment, Hot List, News, Politics & Government, Pop Cult, War
By David DeGraw, AmpedStatus Report
Report Contents:
———————I: U.S. Societal Breakdown
———————II: Environmental Crisis
———————III: The Obama Myth
———————IV: Economic Coup - Theft of Trillions
———————V: National Emergency
The economic elite have launched an attack on the U.S. public and society is unraveling at an increased rate.
I: U.S. Societal Breakdown
You may have missed it in the mainstream news media, but statistical societal indicators are reading red across the board. Before exposing the root causes of this breakdown, let’s look at some vital statistics and facts:
* The inequality of wealth in the United States is soaring to an unprecedented level. The US already had the highest inequality of wealth in the industrialized world prior to the financial crisis. Since the crisis, which has hit the middle class and poor much harder than the top one percent, the gap between the top one percent and the remaining 99% of the US population has grown to a record high.
* As the stock market went over the 10,000 mark and just surged to a 13-month high, the three big banks that took taxpayer money and benefit the most from the government bailout have just set a new global economic record by issuing $30 billion in annual bonuses this year, “up 60 percent from last year.” Bloomberg reported: “Goldman Sachs, the most profitable securities firm in Wall Street history, had a record profit in the first nine months of this year and set aside $16.7 billion for compensation expenses.” Goldman Sachs is on pace for the best year in the firm’s history, they are also benefiting by only paying 1% in taxes.
* The profits of the economic elite are “now underwritten by taxpayers with $23.7 trillion worth of national wealth.”
As the looting is occurring at the top, the US middle class is just beginning to collapse.
* Workers between the age of 55 - 60, who have worked for 20 - 29 years, have lost an average of 25 percent off their 401k. During the same time period, the wealth of the 400 richest Americans went up by $30 billion, bringing their total combined wealth to $1.57 trillion.
* Home foreclosure filings “hit a record high in the third quarter [of 2009]… They were the worst three months of all time… 937,840 homes received a foreclosure letter” in this three month period. “3.4 million homes are expected to enter foreclosure by year’s end, with some experts estimating that next year will be even worse.”
President Obama has enacted a $75 billion taxpayer funded program that has been a spectacular failure in stemming the foreclosure crisis and has proven to be another massive waste of billions of taxpayer dollars.
* 25 Million people are unemployed or underemployed.
This means we have 25 million people who urgently need to increase their income, and they’re quickly running out of options. The unemployment rate is expected to rise further and remain high for several years. “The president’s chief economic adviser warned that the nation’s unemployment rate could stay ‘unacceptably high’ for years to come.”
The NY Times reports: “Americans now confront a job market that is bleaker than ever in the current recession, and employment prospects are still getting worse. Job seekers now outnumber openings six to one, the worst ratio since the government began tracking…” As this ratio continues to grow, it will lead to a further reduction in wages - average worker wages have seen a sharp decline over the past year.
Economist Nouriel Roubini, a man who accurately predicted our current crisis, just reported on unemployment stating: “Think the worst is over? Wrong. Conditions in the U.S. labor markets are awful and worsening…. So we can expect that job losses will continue until the end of 2010 at the earliest. In other words, if you are unemployed and looking for work and just waiting for the economy to turn the corner, you had better hunker down. All the economic numbers suggest this will take a while. The jobs just are not coming back.”
* As the few elite banks thrive, there have been 123 US bank failures thus far this year. Recently, three banks that the government declared “healthy” and gave taxpayer money to have folded. The Wall Street Journal reports: “U.S. regulators have seized or threatened at least 27 banks that got capital infusions from the Troubled Asset Relief Program, including some lenders government officials knew were troubled when they awarded the money. The troubles put taxpayers at risk of losing as much as $5.1 billion invested in the banks since TARP was launched in October 2008.”
* As bankruptcies surge across the board, 10 US states are on the verge of bankruptcy, with several ready to declare a financial state of emergency. California, Arizona, Florida, Illinois, Michigan, Nevada, New Jersey, Oregon, Rhode Island and Wisconsin are all “barreling toward economic disaster, raising the likelihood of higher taxes, more government layoffs and deep cuts in services.”
This is occurring at a time when the “federal budget deficit for the fiscal year that just ended was $1.4 trillion, nearly a trillion dollars greater than the year before.” In total, “US public debt topped 12 trillion dollars for the first time in history… The public debt topped 10 trillion dollars in September 2008. The debt is quickly approaching the statutory limit of 12.104 trillion dollars, meaning Congress would have to raise the ceiling to prevent a shutdown of government operations.”
Economist Dean Baker explains the risk of running such a large deficit: “The debt limit must be increased at regular intervals in order to allow the government to function normally because the government is currently operating at a deficit. If the debt limit is not passed, then at some point the government will not be able to pay workers and contractors. It won’t be able to send out Social Security checks or make payments for Medicaid and unemployment insurance to state governments. And, it will not be able to make interest payments on government bonds, effectively defaulting on the national debt.”
Needless to say, all of this will make life drastically more difficult for citizens of the US. As the middle class continues on the path of economic decline, the number of citizens living in poverty has already hit an all time high.
* Although the government’s official figure tries to low-ball the number, 47.4 Million US citizens live in poverty, and the US poverty rate is the highest in the industrialized world.
Predictably, homelessness is rising at an increased rate as well. “The US government does not tally the numbers but interested organisations say that more than 3 million people were homeless at some point over the past year…. The fastest growing segment of the homeless population is families with children.”
Children have been hit especially hard by the economic crisis:
* 50% of US children, one out of every two children, will need to use food stamps to eat.
One out of every two children in the United States of America will need to use a food stamp… to EAT!
If you didn’t think starvation was a serious threat in the US, just read this new Washington Post report: “The nation’s economic crisis has catapulted the number of Americans who lack enough food to the highest level since the government has been keeping track, according to a new federal report, which shows that nearly 50 million people — including almost one child in four — struggled last year to get enough to eat… Several independent advocates and policy experts on hunger said that they had been bracing for the latest report to show deepening shortages, but that they were nevertheless astonished by how much the problem has worsened. ‘This is unthinkable. It’s like we are living in a Third World country,’ said Vicki Escarra, president of Feeding America.”
The United States Department of Agriculture released these findings in a study that was completed in December 2008, which means these numbers don’t take into account the millions more unemployed throughout 2009. The numbers of people living in poverty and struggling to eat has seen a significant increase since then.
This a national tragedy. But it gets much worse.
* In 2008, according to the Census Bureau, the number of US citizens without healthcare grew to a record 46.3 million. “The new figures, however, understate the severity of the economic downturn because a large portion of nation’s job losses and unemployment rate increases occurred after the Census survey data was collected in March as part of the annual Current Population Survey.”
* Lack of health Insurance has caused 45,000 preventable U.S. citizen deaths in the past year. The American Journal of Medicine recently released a study that stated “Nearly two out of three bankruptcies stem from medical bills, and even people with health insurance face financial disaster if they experience a serious illness.”
A Johns Hopkins Children’s Center study reported that 17,000 children have died due to lack of healthcare. You can also add in a recent report that revealed that 2,266 US Veterans have died in 2008 due to lack of insurance.
The 50 million now uninsured and the 45,000 preventable deaths per year statistics are expected to drastically rise over the next few years. As the Senate continues to strip meaningful amendments from a healthcare bill that wouldn’t even take effect until 2013, it has become clear that, despite the media hype, the healthcare bill is going to fall far short of meaningful reform and continue to rig the game in favor of large insurance company profits at the expense of the US population. With the highest cost healthcare in the world, current trends will continue and much needed change is not on the horizon.
Never before has the United States had so many citizens with so little means, little to no income and heavy debt. Debt and costs of living have now shackled US citizens just as it has shackled people throughout the world. The economic hit men have now hit the US as well and millions of US citizens are now effectively sentenced to a slow death.
Economic Imperial blowback has hit the mainland.
And the clock is ticking louder by the day…
Here’s another fact for you:
* The gun and ammunition manufacturing industry in the United States has over 200 companies producing billions of dollars in annual revenues. This huge manufacturing base cannot fulfill demand quickly enough. The demand for guns and ammunition has hit a record high and the gun industry cannot produce enough bullets to keep up with orders.
American’s are arming themselves to the teeth!
* In the past year, 100 new armed militia groups have been formed, as militia members have doubled in numbers. Federal authorities are gravely concerned about the “uptick in militia activities.” One federal authority recently said, “All it’s lacking is a spark. I think it’s only a matter of time before you see threats and violence.”
So let’s breakdown these numbers.
You have a population of 50 million people who are in desperate need of money, they most likely have no health insurance and can’t afford to get healthcare or help of any kind. Part of this population probably also has loved ones who can’t get life sustaining medical treatments, or loved ones that have already died due to lack of costly medical treatment. The clock is ticking loud for these people and they are running out of options fast, and time delayed is time closer to death.
While the richest one percent have never had it so good, a significant percentage of the US population now has firsthand experience in this. Millions upon millions of Americans are poor, broke, struggling, starving, desperate… and armed.
We are sitting on a powder keg!
We are now witnessing the critical unraveling of US society.
- - - - - - - - - - - -
II: Environmental Crisis
Add to this picture an environmental crisis the likes of which humanity has never faced.
Considering our current economy, what will happen when another extreme weather event like Hurricane Katrina hits a major US city? What will happen when storms, droughts and fires continue to spread with increasing intensity? How many have to die before even modest actions are taken to prevent environmental catastrophe?
Extreme weather events are pounding the globe, it is as if the environment has declared war on us as a species. Humanity has become a polluting cancer in the environmental system, and if we don’t urgently act to stop the bleeding, things are going to get drastically worse in a pace faster than anticipated. And this is not an opinion; it is happening now, there is plenty of empirical evidence that anyone can see before their own eyes, if they care to look.
US public opinion on the climate crisis has been distorted by the mainstream US media in stunning fashion. A recent Pew Research study revealed that only 36 percent of the US population thinks the climate crisis is a result of human activity.
Regardless of your beliefs, due to climate change, we are on the verge of experiencing major water shortages spreading “across the country. Sooner rather than later…” California has already been hit by extreme drought and water is in very short supply. As the Arctic continues to melt, California will continue to experience extreme drought. A new study revealed: “when Arctic sea ice disappears, the jet stream—high-altitude winds with a profound influence on climate—shifts north, moving precipitation away from California.” A recent “sweeping water-reform bill” in California temporarily eased public outcry, but the problem remains. The U.S. is confronted by a serious water crisis.
For a global example, there is currently an extreme drought in East Africa as well, which has 23 million people on the verge of dying from starvation. Due to the drought, crops have been killed in unprecedented fashion. Events of this nature are happening all over the globe.
Of the worldwide record one billion people going hungry, the leading cause is destroyed agriculture due to extreme weather.
As a significant percentage of humanity faces death due to climate change, we are in the midst of our planet’s sixth great extinction. Over 17,000 species are threatened with extinction, “more than one in five of all known mammals, over a quarter of reptiles and 70 percent of plants are under threat.”
For those of you unaware, the earth’s ecosystem is a very delicate balance. Being in the midst of the earth’s sixth great extinction is not a matter to be ignored.
The upcoming climate summit in Copenhagen was considered by leaders throughout the world to be the most critical environmental summit in the history of civilization. International headlines read: “We only have months, not years, to save civilization from climate change.”
However, the United States and the head of the United Nations just announced that no legally binding treaties are expected to come out of the summit. This is devastating news!
The reason why no deal will be reached at the summit: the United States is refusing to take necessary action.
In a PR move to calm criticism in advance of the summit, the US and Japan announced a vague agreement to cut greenhouse gas emissions… in 2012. However, the “agreement on this ambitious reduction target could not be reached during the APEC summit, and so was dropped from the draft statement.”
It would be smart of the public relations department to at least get one photo op with Obama actually at the climate summit. Instead of being at the most important summit, perhaps in the history of civilization, it appears Obama will be blowing it off to give his speech on how it feels to win the Nobel Peace Prize… H E L L O.
We are living in an insane asylum.
The Goldman Sachs PR guy is out giving speeches on how cool it is to cast the illusion of peace and hope, while the earth burns.
- - - - - - - - - - - -
III: The Obama Myth
I don’t mean to dismiss the Obama myth, his words, the change we need is real, its just his actions don’t even come close to measuring up. Just read the legal documents he has signed his name to. Read them. His actions are most often the opposite of what he says. I venture to say a 10 year old can recognize that after doing a school day’s worth of research.
Obama is a national tragedy. He is a symbol of the times. He is not a leader, just a symbol. He projects the change we need. He was our shortcut to correcting our diseased political system, a way to rid it of corruption. He symbolized the change millions so desperately need. People came out in the millions for the first time “hoping” if they could work and organize to put him in office, we would have some representation to defend against the economic elite that have put the overwhelming majority of US politicians on the payroll and brought humanity to a breaking point.
People just need to research how the Obama myth was hatched. Goldman Sachs saw Obama early on and said, “He’s our guy!” When Obama became THE MAN in Iowa, he was on the Goldman Sachs pay roll. Goldman financed the psychological operation that is the Obama myth, the Illusion of HOPE - something to keep a suffering nation pacified just a little bit longer. Obama is truly a national tragedy. His failure and inaction has disillusioned millions upon millions of desperate citizens who turned to him as their best chance for justice.
As further evidence of Obama’s duplicity — beyond repeatedly signing his name to documents covering up the Bush Adminstration’s highest crimes and increasing an already bloated military budget — in one of his very first moves as President he put Goldman Sachs’ criminal mastermind Tim Geitner in charge of the treasury.
A new report from the TARP Inspector General further exposes Tim Geithner’s role “in overpayments that put billions of extra tax dollars in the coffers of major Wall Street firms, most notably Goldman Sachs.”
Which brings us to the ultimate theft of wealth in history, and to the root cause of our current crisis.
- - - - - - - - - - - -
IV: Economic Coup - Theft of Trillions
URGENT NATIONAL EMERGENCY: TRILLIONS OF DOLLARS IN PUBLIC WEALTH HAS BEEN STOLEN
This crime makes Bernie Madoff’s look like an elementary school lunch money stickup. No, I’m not talking about the hundreds of billions in the housing crisis scam cooked up by JP Morgan and Goldman Sachs that left millions homeless and investors suckered the world over, or even the $2.75 trillion oil futures market scam that has siphoned 50% of all our spending on gas and fuel.
These huge scams are just diversions from the ultimate crime.
Trillions of dollars, trillions of our money, of our tax money — the money that comes out of your paycheck every week of your working life, all the thousands upon thousands that have been taken away from you and your family and are supposed to fund our government and keep our society functioning — have been handed over to the economic elite, to the Llyod Blankfeins and Jamie Dimons of the world.
Hank Paulson and his confidant Tim Geitner, the Goldman Sachs wonder twins, have looted the US treasury. There has been an economic coup in the United States!
Trillions of our dollars have vanished! You need to understand this!
We have just witnessed the greatest theft of wealth in history, the greatest transfer of wealth from the working class to the economic elite ever. An organized banking cartel has seized the US treasury and they are making up the “laws” and the rules to this rigged game. The covert economy has grown at a staggering rate due to taxpayer-funded injections. As a result of this, economic shackles are just beginning to fall upon the American public like never before. 99% of our nation is now sentenced to a slow death.
Just as economic hit men have done to governments throughout the globe, they have gained complete control of the US government and have now shackled US citizens as well. The economic elite do not want to deal with “spoiled Americans” anymore, that’s how they see it. To them the middle class was always an annoying nuisance to be tolerated so the economy could keep functioning well enough to allow their scams to perpetuate. But once their scam known as the US stock market came crashing down, and they were threatened with losing their ultimate power, they turned to the US middle class and opened fire. “Enough with you, we are taking over your government and stealing your tax money!”
This is exactly what happened!
The economic elite are operating under the belief that the world is theirs, they own it, and to hell with everyone else. They also take the view that as the environment grows more destructive, they don’t want us around to compete for resources.
This is self-evident after some research into policy actions that have been carried out. Research it for yourself!
Recent investigations into the illegal practices of Goldman Sachs and JP Morgan have revealed the US economy and stock market to be a fraud. As more of the world becomes aware of this, the dollar will continue to plummet and the U.S. public will pay a devastating price - things are just beginning to unravel.
The US economy has been hit by a deathblow, it lay in ruins naked and exposed to “Too Big Too Fail” thieves who have raped and pillaged, who are looting public wealth in unprecedented fashion.
The economic elite are vultures feeding off the carcass that is the US economy. The whole political structure has been gutted by corruption. Democracy was the façade that this house of cards was built on - a pyramid scheme that was built on the illusion of law and freedom.
Historians will look back at this time as a period in which corrupt despots ruled the masses with utter short-sighted greed and casted an illusion over the base population to keep the scam rolling along, until the end of the American empire, until the public driven economy came crashing down in a thunderous economic cloud of greed and corruption.
The smoke is still in our eyes, but the masses are beginning to see, to realize.
- - - - - - - - - - - -
V: National Emergency
Many middle class US citizens don’t realize all of this yet, I understand their lack of action and confusion because I have also been bred as a middle class American in the propaganda system known as the US mainstream media, but I’m writing this to let you know…
Our survival instinct has to quickly override our conditioned naiveté and passivity that has been bred into us. We are threatened as a country and a species at the same time.
We, as a nation, must overcome heavy doses of propaganda administered by the mainstream media for hours a day, every day of our existence. Shake off your conditioned naiveté and passivity. This is a brutal world we live in, and we are now at war…
The American dream state is over. It’s time to get real, time to sound the alarm.
I am of the sincere hope that we will be able to rise up as a counterweight to the economic elite. In the overall scheme of things, history has placed us in a pivotal position. We are a vital countervailing force to the economic elite and must immediately start exercising our rights of redress.
People throughout the world understand that the US middle class has to serve as a counterweight to an economic cartel that has brought humanity to a breaking point.
The economic elite also understand this, this is why they have launched a war on us.
Now that our existence is directly threatened as well, people are awaking from a propagandized existence and realizing the gravity of our crisis.
We must sound the alarm and discard our illusions.
It is time to evolve from a state of “Hope” to a state of “Action.”
We desperately need intelligent leadership, free from the shackles of the banking cartel.
We, as a nation, cannot continue to settle for the politics of corruption. We must begin by addressing the root cause of our troubles and hold accountable those directly responsible for the greatest theft of wealth in history.
We must flood the halls of Congress; we must engage our House of Representatives and begin to rein in the economic elite.
This Is A… NATIONAL EMERGENCY…
Economic justice is possible, it may be hard to believe here in the US, but a nation of law is still possible. It is possible only if YOU begin to act.
We are 99% of the population, they are only 1%.
The outcome is not assured; we must start organizing on a mass scale.
Take your plight to your representative. SOUND THE ALARM!
We must understand “the fierce urgency of now!”
THE ALARM HAS BEEN SOUNDED . . .
~ AmpedStatus Report
If you would like to see more of these reports, please consider making a donation to support them.
The Critical Unraveling of U.S. Society
Wednesday, November 18th, 2009
Filed under Activism, Economy, Environment, Hot List, News, Politics & Government, Pop Cult, War
By David DeGraw, AmpedStatus Report
Report Contents:
———————I: U.S. Societal Breakdown
———————II: Environmental Crisis
———————III: The Obama Myth
———————IV: Economic Coup - Theft of Trillions
———————V: National Emergency
The economic elite have launched an attack on the U.S. public and society is unraveling at an increased rate.
I: U.S. Societal Breakdown
You may have missed it in the mainstream news media, but statistical societal indicators are reading red across the board. Before exposing the root causes of this breakdown, let’s look at some vital statistics and facts:
* The inequality of wealth in the United States is soaring to an unprecedented level. The US already had the highest inequality of wealth in the industrialized world prior to the financial crisis. Since the crisis, which has hit the middle class and poor much harder than the top one percent, the gap between the top one percent and the remaining 99% of the US population has grown to a record high.
* As the stock market went over the 10,000 mark and just surged to a 13-month high, the three big banks that took taxpayer money and benefit the most from the government bailout have just set a new global economic record by issuing $30 billion in annual bonuses this year, “up 60 percent from last year.” Bloomberg reported: “Goldman Sachs, the most profitable securities firm in Wall Street history, had a record profit in the first nine months of this year and set aside $16.7 billion for compensation expenses.” Goldman Sachs is on pace for the best year in the firm’s history, they are also benefiting by only paying 1% in taxes.
* The profits of the economic elite are “now underwritten by taxpayers with $23.7 trillion worth of national wealth.”
As the looting is occurring at the top, the US middle class is just beginning to collapse.
* Workers between the age of 55 - 60, who have worked for 20 - 29 years, have lost an average of 25 percent off their 401k. During the same time period, the wealth of the 400 richest Americans went up by $30 billion, bringing their total combined wealth to $1.57 trillion.
* Home foreclosure filings “hit a record high in the third quarter [of 2009]… They were the worst three months of all time… 937,840 homes received a foreclosure letter” in this three month period. “3.4 million homes are expected to enter foreclosure by year’s end, with some experts estimating that next year will be even worse.”
President Obama has enacted a $75 billion taxpayer funded program that has been a spectacular failure in stemming the foreclosure crisis and has proven to be another massive waste of billions of taxpayer dollars.
* 25 Million people are unemployed or underemployed.
This means we have 25 million people who urgently need to increase their income, and they’re quickly running out of options. The unemployment rate is expected to rise further and remain high for several years. “The president’s chief economic adviser warned that the nation’s unemployment rate could stay ‘unacceptably high’ for years to come.”
The NY Times reports: “Americans now confront a job market that is bleaker than ever in the current recession, and employment prospects are still getting worse. Job seekers now outnumber openings six to one, the worst ratio since the government began tracking…” As this ratio continues to grow, it will lead to a further reduction in wages - average worker wages have seen a sharp decline over the past year.
Economist Nouriel Roubini, a man who accurately predicted our current crisis, just reported on unemployment stating: “Think the worst is over? Wrong. Conditions in the U.S. labor markets are awful and worsening…. So we can expect that job losses will continue until the end of 2010 at the earliest. In other words, if you are unemployed and looking for work and just waiting for the economy to turn the corner, you had better hunker down. All the economic numbers suggest this will take a while. The jobs just are not coming back.”
* As the few elite banks thrive, there have been 123 US bank failures thus far this year. Recently, three banks that the government declared “healthy” and gave taxpayer money to have folded. The Wall Street Journal reports: “U.S. regulators have seized or threatened at least 27 banks that got capital infusions from the Troubled Asset Relief Program, including some lenders government officials knew were troubled when they awarded the money. The troubles put taxpayers at risk of losing as much as $5.1 billion invested in the banks since TARP was launched in October 2008.”
* As bankruptcies surge across the board, 10 US states are on the verge of bankruptcy, with several ready to declare a financial state of emergency. California, Arizona, Florida, Illinois, Michigan, Nevada, New Jersey, Oregon, Rhode Island and Wisconsin are all “barreling toward economic disaster, raising the likelihood of higher taxes, more government layoffs and deep cuts in services.”
This is occurring at a time when the “federal budget deficit for the fiscal year that just ended was $1.4 trillion, nearly a trillion dollars greater than the year before.” In total, “US public debt topped 12 trillion dollars for the first time in history… The public debt topped 10 trillion dollars in September 2008. The debt is quickly approaching the statutory limit of 12.104 trillion dollars, meaning Congress would have to raise the ceiling to prevent a shutdown of government operations.”
Economist Dean Baker explains the risk of running such a large deficit: “The debt limit must be increased at regular intervals in order to allow the government to function normally because the government is currently operating at a deficit. If the debt limit is not passed, then at some point the government will not be able to pay workers and contractors. It won’t be able to send out Social Security checks or make payments for Medicaid and unemployment insurance to state governments. And, it will not be able to make interest payments on government bonds, effectively defaulting on the national debt.”
Needless to say, all of this will make life drastically more difficult for citizens of the US. As the middle class continues on the path of economic decline, the number of citizens living in poverty has already hit an all time high.
* Although the government’s official figure tries to low-ball the number, 47.4 Million US citizens live in poverty, and the US poverty rate is the highest in the industrialized world.
Predictably, homelessness is rising at an increased rate as well. “The US government does not tally the numbers but interested organisations say that more than 3 million people were homeless at some point over the past year…. The fastest growing segment of the homeless population is families with children.”
Children have been hit especially hard by the economic crisis:
* 50% of US children, one out of every two children, will need to use food stamps to eat.
One out of every two children in the United States of America will need to use a food stamp… to EAT!
If you didn’t think starvation was a serious threat in the US, just read this new Washington Post report: “The nation’s economic crisis has catapulted the number of Americans who lack enough food to the highest level since the government has been keeping track, according to a new federal report, which shows that nearly 50 million people — including almost one child in four — struggled last year to get enough to eat… Several independent advocates and policy experts on hunger said that they had been bracing for the latest report to show deepening shortages, but that they were nevertheless astonished by how much the problem has worsened. ‘This is unthinkable. It’s like we are living in a Third World country,’ said Vicki Escarra, president of Feeding America.”
The United States Department of Agriculture released these findings in a study that was completed in December 2008, which means these numbers don’t take into account the millions more unemployed throughout 2009. The numbers of people living in poverty and struggling to eat has seen a significant increase since then.
This a national tragedy. But it gets much worse.
* In 2008, according to the Census Bureau, the number of US citizens without healthcare grew to a record 46.3 million. “The new figures, however, understate the severity of the economic downturn because a large portion of nation’s job losses and unemployment rate increases occurred after the Census survey data was collected in March as part of the annual Current Population Survey.”
* Lack of health Insurance has caused 45,000 preventable U.S. citizen deaths in the past year. The American Journal of Medicine recently released a study that stated “Nearly two out of three bankruptcies stem from medical bills, and even people with health insurance face financial disaster if they experience a serious illness.”
A Johns Hopkins Children’s Center study reported that 17,000 children have died due to lack of healthcare. You can also add in a recent report that revealed that 2,266 US Veterans have died in 2008 due to lack of insurance.
The 50 million now uninsured and the 45,000 preventable deaths per year statistics are expected to drastically rise over the next few years. As the Senate continues to strip meaningful amendments from a healthcare bill that wouldn’t even take effect until 2013, it has become clear that, despite the media hype, the healthcare bill is going to fall far short of meaningful reform and continue to rig the game in favor of large insurance company profits at the expense of the US population. With the highest cost healthcare in the world, current trends will continue and much needed change is not on the horizon.
Never before has the United States had so many citizens with so little means, little to no income and heavy debt. Debt and costs of living have now shackled US citizens just as it has shackled people throughout the world. The economic hit men have now hit the US as well and millions of US citizens are now effectively sentenced to a slow death.
Economic Imperial blowback has hit the mainland.
And the clock is ticking louder by the day…
Here’s another fact for you:
* The gun and ammunition manufacturing industry in the United States has over 200 companies producing billions of dollars in annual revenues. This huge manufacturing base cannot fulfill demand quickly enough. The demand for guns and ammunition has hit a record high and the gun industry cannot produce enough bullets to keep up with orders.
American’s are arming themselves to the teeth!
* In the past year, 100 new armed militia groups have been formed, as militia members have doubled in numbers. Federal authorities are gravely concerned about the “uptick in militia activities.” One federal authority recently said, “All it’s lacking is a spark. I think it’s only a matter of time before you see threats and violence.”
So let’s breakdown these numbers.
You have a population of 50 million people who are in desperate need of money, they most likely have no health insurance and can’t afford to get healthcare or help of any kind. Part of this population probably also has loved ones who can’t get life sustaining medical treatments, or loved ones that have already died due to lack of costly medical treatment. The clock is ticking loud for these people and they are running out of options fast, and time delayed is time closer to death.
While the richest one percent have never had it so good, a significant percentage of the US population now has firsthand experience in this. Millions upon millions of Americans are poor, broke, struggling, starving, desperate… and armed.
We are sitting on a powder keg!
We are now witnessing the critical unraveling of US society.
- - - - - - - - - - - -
II: Environmental Crisis
Add to this picture an environmental crisis the likes of which humanity has never faced.
Considering our current economy, what will happen when another extreme weather event like Hurricane Katrina hits a major US city? What will happen when storms, droughts and fires continue to spread with increasing intensity? How many have to die before even modest actions are taken to prevent environmental catastrophe?
Extreme weather events are pounding the globe, it is as if the environment has declared war on us as a species. Humanity has become a polluting cancer in the environmental system, and if we don’t urgently act to stop the bleeding, things are going to get drastically worse in a pace faster than anticipated. And this is not an opinion; it is happening now, there is plenty of empirical evidence that anyone can see before their own eyes, if they care to look.
US public opinion on the climate crisis has been distorted by the mainstream US media in stunning fashion. A recent Pew Research study revealed that only 36 percent of the US population thinks the climate crisis is a result of human activity.
Regardless of your beliefs, due to climate change, we are on the verge of experiencing major water shortages spreading “across the country. Sooner rather than later…” California has already been hit by extreme drought and water is in very short supply. As the Arctic continues to melt, California will continue to experience extreme drought. A new study revealed: “when Arctic sea ice disappears, the jet stream—high-altitude winds with a profound influence on climate—shifts north, moving precipitation away from California.” A recent “sweeping water-reform bill” in California temporarily eased public outcry, but the problem remains. The U.S. is confronted by a serious water crisis.
For a global example, there is currently an extreme drought in East Africa as well, which has 23 million people on the verge of dying from starvation. Due to the drought, crops have been killed in unprecedented fashion. Events of this nature are happening all over the globe.
Of the worldwide record one billion people going hungry, the leading cause is destroyed agriculture due to extreme weather.
As a significant percentage of humanity faces death due to climate change, we are in the midst of our planet’s sixth great extinction. Over 17,000 species are threatened with extinction, “more than one in five of all known mammals, over a quarter of reptiles and 70 percent of plants are under threat.”
For those of you unaware, the earth’s ecosystem is a very delicate balance. Being in the midst of the earth’s sixth great extinction is not a matter to be ignored.
The upcoming climate summit in Copenhagen was considered by leaders throughout the world to be the most critical environmental summit in the history of civilization. International headlines read: “We only have months, not years, to save civilization from climate change.”
However, the United States and the head of the United Nations just announced that no legally binding treaties are expected to come out of the summit. This is devastating news!
The reason why no deal will be reached at the summit: the United States is refusing to take necessary action.
In a PR move to calm criticism in advance of the summit, the US and Japan announced a vague agreement to cut greenhouse gas emissions… in 2012. However, the “agreement on this ambitious reduction target could not be reached during the APEC summit, and so was dropped from the draft statement.”
It would be smart of the public relations department to at least get one photo op with Obama actually at the climate summit. Instead of being at the most important summit, perhaps in the history of civilization, it appears Obama will be blowing it off to give his speech on how it feels to win the Nobel Peace Prize… H E L L O.
We are living in an insane asylum.
The Goldman Sachs PR guy is out giving speeches on how cool it is to cast the illusion of peace and hope, while the earth burns.
- - - - - - - - - - - -
III: The Obama Myth
I don’t mean to dismiss the Obama myth, his words, the change we need is real, its just his actions don’t even come close to measuring up. Just read the legal documents he has signed his name to. Read them. His actions are most often the opposite of what he says. I venture to say a 10 year old can recognize that after doing a school day’s worth of research.
Obama is a national tragedy. He is a symbol of the times. He is not a leader, just a symbol. He projects the change we need. He was our shortcut to correcting our diseased political system, a way to rid it of corruption. He symbolized the change millions so desperately need. People came out in the millions for the first time “hoping” if they could work and organize to put him in office, we would have some representation to defend against the economic elite that have put the overwhelming majority of US politicians on the payroll and brought humanity to a breaking point.
People just need to research how the Obama myth was hatched. Goldman Sachs saw Obama early on and said, “He’s our guy!” When Obama became THE MAN in Iowa, he was on the Goldman Sachs pay roll. Goldman financed the psychological operation that is the Obama myth, the Illusion of HOPE - something to keep a suffering nation pacified just a little bit longer. Obama is truly a national tragedy. His failure and inaction has disillusioned millions upon millions of desperate citizens who turned to him as their best chance for justice.
As further evidence of Obama’s duplicity — beyond repeatedly signing his name to documents covering up the Bush Adminstration’s highest crimes and increasing an already bloated military budget — in one of his very first moves as President he put Goldman Sachs’ criminal mastermind Tim Geitner in charge of the treasury.
A new report from the TARP Inspector General further exposes Tim Geithner’s role “in overpayments that put billions of extra tax dollars in the coffers of major Wall Street firms, most notably Goldman Sachs.”
Which brings us to the ultimate theft of wealth in history, and to the root cause of our current crisis.
- - - - - - - - - - - -
IV: Economic Coup - Theft of Trillions
URGENT NATIONAL EMERGENCY: TRILLIONS OF DOLLARS IN PUBLIC WEALTH HAS BEEN STOLEN
This crime makes Bernie Madoff’s look like an elementary school lunch money stickup. No, I’m not talking about the hundreds of billions in the housing crisis scam cooked up by JP Morgan and Goldman Sachs that left millions homeless and investors suckered the world over, or even the $2.75 trillion oil futures market scam that has siphoned 50% of all our spending on gas and fuel.
These huge scams are just diversions from the ultimate crime.
Trillions of dollars, trillions of our money, of our tax money — the money that comes out of your paycheck every week of your working life, all the thousands upon thousands that have been taken away from you and your family and are supposed to fund our government and keep our society functioning — have been handed over to the economic elite, to the Llyod Blankfeins and Jamie Dimons of the world.
Hank Paulson and his confidant Tim Geitner, the Goldman Sachs wonder twins, have looted the US treasury. There has been an economic coup in the United States!
Trillions of our dollars have vanished! You need to understand this!
We have just witnessed the greatest theft of wealth in history, the greatest transfer of wealth from the working class to the economic elite ever. An organized banking cartel has seized the US treasury and they are making up the “laws” and the rules to this rigged game. The covert economy has grown at a staggering rate due to taxpayer-funded injections. As a result of this, economic shackles are just beginning to fall upon the American public like never before. 99% of our nation is now sentenced to a slow death.
Just as economic hit men have done to governments throughout the globe, they have gained complete control of the US government and have now shackled US citizens as well. The economic elite do not want to deal with “spoiled Americans” anymore, that’s how they see it. To them the middle class was always an annoying nuisance to be tolerated so the economy could keep functioning well enough to allow their scams to perpetuate. But once their scam known as the US stock market came crashing down, and they were threatened with losing their ultimate power, they turned to the US middle class and opened fire. “Enough with you, we are taking over your government and stealing your tax money!”
This is exactly what happened!
The economic elite are operating under the belief that the world is theirs, they own it, and to hell with everyone else. They also take the view that as the environment grows more destructive, they don’t want us around to compete for resources.
This is self-evident after some research into policy actions that have been carried out. Research it for yourself!
Recent investigations into the illegal practices of Goldman Sachs and JP Morgan have revealed the US economy and stock market to be a fraud. As more of the world becomes aware of this, the dollar will continue to plummet and the U.S. public will pay a devastating price - things are just beginning to unravel.
The US economy has been hit by a deathblow, it lay in ruins naked and exposed to “Too Big Too Fail” thieves who have raped and pillaged, who are looting public wealth in unprecedented fashion.
The economic elite are vultures feeding off the carcass that is the US economy. The whole political structure has been gutted by corruption. Democracy was the façade that this house of cards was built on - a pyramid scheme that was built on the illusion of law and freedom.
Historians will look back at this time as a period in which corrupt despots ruled the masses with utter short-sighted greed and casted an illusion over the base population to keep the scam rolling along, until the end of the American empire, until the public driven economy came crashing down in a thunderous economic cloud of greed and corruption.
The smoke is still in our eyes, but the masses are beginning to see, to realize.
- - - - - - - - - - - -
V: National Emergency
Many middle class US citizens don’t realize all of this yet, I understand their lack of action and confusion because I have also been bred as a middle class American in the propaganda system known as the US mainstream media, but I’m writing this to let you know…
Our survival instinct has to quickly override our conditioned naiveté and passivity that has been bred into us. We are threatened as a country and a species at the same time.
We, as a nation, must overcome heavy doses of propaganda administered by the mainstream media for hours a day, every day of our existence. Shake off your conditioned naiveté and passivity. This is a brutal world we live in, and we are now at war…
The American dream state is over. It’s time to get real, time to sound the alarm.
I am of the sincere hope that we will be able to rise up as a counterweight to the economic elite. In the overall scheme of things, history has placed us in a pivotal position. We are a vital countervailing force to the economic elite and must immediately start exercising our rights of redress.
People throughout the world understand that the US middle class has to serve as a counterweight to an economic cartel that has brought humanity to a breaking point.
The economic elite also understand this, this is why they have launched a war on us.
Now that our existence is directly threatened as well, people are awaking from a propagandized existence and realizing the gravity of our crisis.
We must sound the alarm and discard our illusions.
It is time to evolve from a state of “Hope” to a state of “Action.”
We desperately need intelligent leadership, free from the shackles of the banking cartel.
We, as a nation, cannot continue to settle for the politics of corruption. We must begin by addressing the root cause of our troubles and hold accountable those directly responsible for the greatest theft of wealth in history.
We must flood the halls of Congress; we must engage our House of Representatives and begin to rein in the economic elite.
This Is A… NATIONAL EMERGENCY…
Economic justice is possible, it may be hard to believe here in the US, but a nation of law is still possible. It is possible only if YOU begin to act.
We are 99% of the population, they are only 1%.
The outcome is not assured; we must start organizing on a mass scale.
Take your plight to your representative. SOUND THE ALARM!
We must understand “the fierce urgency of now!”
THE ALARM HAS BEEN SOUNDED . . .
~ AmpedStatus Report
If you would like to see more of these reports, please consider making a donation to support them.
Thursday, September 3, 2009
The Spend-And-Borrow Economy
http://www.forbes.com/2009/08/26/stimulus-recession-fiscal-monetary-liquidity-taxes-opinions-columnists-nouriel-roubini.html
Doctor Doom
The Spend-And-Borrow Economy
Nouriel Roubini, 08.27.09
In the last few months the world economy has been saved from a near-depression. That feat has been achieved by a range of extraordinary government stimulus measures: In the U.S. and in China, and to a lesser extent in Europe, Japan and other countries, governments have pumped liquidity, slashed policy rates, cut taxes, primed demand and ring-fenced and back-stopped the financial system. All of this has worked, but at a cost. Governments have been spending and borrowing like never before. The question now is: how do they stop?
This is not a simple problem. Restore normality too soon and the risk is that a weak recovery will double dip into a second and deeper recession. Restore it too late and inflation will already be ingrained.
Consider how much has been committed and how much has been spent. In the U.S. alone, when you add up the government's liquidity support measures, its re-capitalizations of banks, its guarantees of bad assets, its extension of deposit insurance and guarantees of unsecured bank debt, at least $12 trillion has been committed, and a quarter of that has already been spent. Along with the rise in spending there has also been a very large fiscal stimulus, pushing the federal budget deficit to 13% of gross domestic product this year. (Next year, on current plans, the deficit will fall back but still amount to 10% of GDP.)
Not all the measures adopted appear on the budgetary bottom line. As well as monetary easing and fiscal stimulus, the U.S. and other governments have resorted to unconventional measures to ease monetary conditions. In the U.S., Japan and the U.K., real interest rates have been pushed down to zero, and governments have resorted to buying long-dated securities, the goal of which--only partially achieved--was to hold down long-term interest rates.
The Fed, for example, has committed to spending $1.8 trillion on longer-dated Treasury bonds and other securities, but most of this spending is money the government has printed itself, simply by creating central bank monetary base. It doesn't add to the budget deficit, although it does add to the long-term risk profile of the government doing the spending as monetization of fiscal deficit can eventually be inflationary.
This massive escalation of central government spending and borrowing was necessary. For most of last year, governments lagged well behind the curve of the unfolding crisis. For too long policymakers continued to believe that the house-price bubble was an isolated aberration that would self-correct without impacting the wider economy, and that the unprecedented growth in household indebtedness was not a matter of concern. By the final quarter of last year, however, the global economy was in freefall, with industrial production, private demand, employment and broad GDP all contracting at a rate indicating something close to depression at hand. Policymakers suddenly went into corrective overdrive in late 2008--not a moment too soon.
The second-quarter GDP estimates for the U.S. show just how significant this aggressive front-loaded policy stimulus has been. While total GDP growth was sharply negative in the first quarter--around -5.6%--the rate of decline in the second quarter had moderated to around -1.5%. Credit this relative improvement to governmental monetary, fiscal and financial stimulus. The private components of GDP, private demand and capital expenditure, were actually still very weak. But government spending rose by 5.6%, breaking what otherwise would have been another quarter of headlong GDP contraction.
Necessary as the stimulus has been, it cannot go on indefinitely. Governments cannot run deficits of 10% or more of GDP, and they cannot go on doubling the monetary base, without eventually stoking inflation expectations, pushing up long-term interest rates and eventually eroding their very viability as sovereign borrowers. Not even the U.S. can do that.
The fiscal implications of the current policy package are particularly serious. For the time being, fiscal policy has been put at the service of survival, but the current price of survival is that net public debt is going to double as a share of GDP between 2008 and 2014. Even using the very optimistic forecasts of the Congressional Budget Office, which anticipate growth of around 4% over the next few years, the net debt burden will rise from 40% of GDP to 80%--that's an increase in the debt stock of about $9 trillion. The interest charge alone on that increased debt will be in the region of $300 billion to $400 billion a year, which in turn may mean more borrowing to pay the interest if primary deficits are not reduced. When governments reach the point where they are borrowing to pay the interest on their borrowing they are coming dangerously close to running a sovereign Ponzi scheme.
Ponzi schemes have a way of ending unhappily. To get out of the Ponzi trap, governments will have to raise taxes, or cut spending, or monetize the debt--or most likely do some combination of all three.
Monetization is already happening. This is where a government effectively prints money by allowing the central bank to create base money that is used to buy government debt, thereby increasing liquidity and holding down long-term interest rates (because the additional demand for these securities pushes up bond prices, thereby lowering the real interest rate the securities pay, as well as putting money into the pockets of the investors who have sold the securities).
Over time, monetization is inflationary, but the inflationary effect is insidious because it is not immediately visible. In the short run deflation will outplay inflation. In most developed countries today there is so much slack in economies, with weak demand and high unemployment, that prices cannot rise. The velocity of money is also weak, as financial institutions are receiving liquidity from central banks and hoarding it to rebuild their balance sheets, instead of lending it out. But as the economy recovers, these effects will abate, and the growth of the monetary base caused by monetization will eventually drive expected and actual inflation. And once markets start to anticipate that scenario, it may already be too late to avert an inflationary surge.
Simply issuing debt in the form of Treasury bonds offers no escape. The more debt a government issues, the higher the risk it will eventually face refinancing problems and/or default on that debt. Accordingly, investors will demand a higher return for investing in that debt, and that in turn will push up rates. Independent rating agencies have already downgraded the sovereign risk rating of countries like Greece and Ireland, and it cannot be ruled out that core economies of the OECD, including the U.S., could eventually be downgraded.
As it happens, there is little sign today of investors demanding a significantly higher risk premium on U.S. government debt. That is partly because private savings are increasing: Those savings have to be invested somewhere and investors are cautious about alternative investments. Foreign demand for U.S. bonds also remains robust so far. But this demand is unlikely to survive another big round of government-financed stimulus and bailout spending. And unfortunately, such a spending round is rather likely.
Consider that by the end of 2010 most of the tax cuts legislated by the Bush administration in 2001 and 2003 are due to expire. This means that there will be a sharp tax hike, including income taxes, capital gains taxes and taxes on dividends and estates. This hike--equivalent to around 1.5% to 2% of GDP--is already factored in to future calculations of government indebtedness. So if by next year the recovery proves as anemic as I expect, and if unemployment is around 10.5%-11%, as I also expect, then the pressure for another stimulus round early in 2010 will be strong.
A rough calculation goes like this: Stimulus money to keep the lid on rising unemployment is likely to be around $200 billion. Add to that the likely temporary partial extension of the Bush tax cuts and funding of the current administration's plans for universal health care (an additional bill of around $1.5 trillion over 10 years) and you get deficits close to12% of GDP.
This amounts to a fiscal train wreck. For the U.S., it means deficits could remain over 10% of GDP for years. Bond issuance will remain enormous, and it will mean that the Fed will almost certainly have to monetize a proportion of the debt by buying even more government or government-backed securities.
A combination of higher official indebtedness and monetization has the potential to yield the worst of all worlds, pushing up long-term rates and generating increased inflation expectations before a convincing return to growth takes hold. An early return to higher long-term rates will crowd out private demand, as lending rates on mortgages and personal and corporate loans rise too. It is unlikely that actual inflation will emerge this year or even next, but inflation expectations as reflected in long-term interest rates could well be rising later in 2010. This would represent a serious threat to economic recovery, which is predicated on the idea that the actual borrowing rates that individuals and businesses pay will remain low for an extended period.
Yet the alternative--the early withdrawal of the stimulus drug that governments have been dispensing so freely--is even more serious. The present administration believes that deflation is a worse threat than inflation. They are right to think that. Trying to rebuild public finances at a deflationary moment--a time when unemployment is rising, and private demand is still contracting--could be catastrophic, turning recovery into renewed recession.
History offers more than one example of this error. It happened in Japan in the late 1990s when the Japanese government feared the effects of fiscal deficits and of an increase in inflation as the economy was beginning to recover after almost a decade of deflation. Consumption taxes were raised too soon and the "zero interest rate policy" was abandoned. Within a year the economy was back in recession.
It also happened in the U.S. in the 1930s. President Roosevelt instituted a massive stimulus package when he came to office in 1933, to push the U.S. economy out of the depression, but by 1937 the administration was worrying that inflation was returning and that deficits were too large; so it cut spending and raised rates and the Fed tightened monetary policy. By 1938 the economy was heading back into near-depression.
So policymakers are between a rock and a hard place. Stop spending now and risk renewed recession and deeper deflation (stag-deflation). Keep spending now and risk renewed recession amid rising inflation expectations (stagflation).
Yet there is a space between the rock and the hard place. It is not a big space, but it is there.
Governments will have to manage perceptions. Today investors remain willing to bankroll federal spending without any clear or firm indication of how the fiscal crisis--and it is a crisis of extraordinary proportions--is going to be dealt with. That won't last. Clear indications will soon be needed as to how and when public finances will be repaired. That doesn't have to be accomplished soon--but it does have to be communicated soon.
Monetary policy can most likely remain looser for longer (in the developed economies at least)--as long as there is a clear commitment to fiscal consolidation. But a credible fiscal commitment to medium-term fiscal sustainability is vital, because that is what will open up the very narrow window that is the exit route from our current and unsustainable spend-and-borrow economy.
Nouriel Roubini, a professor at the Stern Business School at New York University and chairman of Roubini Global Economics, is a weekly columnist for Forbes.
Doctor Doom
The Spend-And-Borrow Economy
Nouriel Roubini, 08.27.09
In the last few months the world economy has been saved from a near-depression. That feat has been achieved by a range of extraordinary government stimulus measures: In the U.S. and in China, and to a lesser extent in Europe, Japan and other countries, governments have pumped liquidity, slashed policy rates, cut taxes, primed demand and ring-fenced and back-stopped the financial system. All of this has worked, but at a cost. Governments have been spending and borrowing like never before. The question now is: how do they stop?
This is not a simple problem. Restore normality too soon and the risk is that a weak recovery will double dip into a second and deeper recession. Restore it too late and inflation will already be ingrained.
Consider how much has been committed and how much has been spent. In the U.S. alone, when you add up the government's liquidity support measures, its re-capitalizations of banks, its guarantees of bad assets, its extension of deposit insurance and guarantees of unsecured bank debt, at least $12 trillion has been committed, and a quarter of that has already been spent. Along with the rise in spending there has also been a very large fiscal stimulus, pushing the federal budget deficit to 13% of gross domestic product this year. (Next year, on current plans, the deficit will fall back but still amount to 10% of GDP.)
Not all the measures adopted appear on the budgetary bottom line. As well as monetary easing and fiscal stimulus, the U.S. and other governments have resorted to unconventional measures to ease monetary conditions. In the U.S., Japan and the U.K., real interest rates have been pushed down to zero, and governments have resorted to buying long-dated securities, the goal of which--only partially achieved--was to hold down long-term interest rates.
The Fed, for example, has committed to spending $1.8 trillion on longer-dated Treasury bonds and other securities, but most of this spending is money the government has printed itself, simply by creating central bank monetary base. It doesn't add to the budget deficit, although it does add to the long-term risk profile of the government doing the spending as monetization of fiscal deficit can eventually be inflationary.
This massive escalation of central government spending and borrowing was necessary. For most of last year, governments lagged well behind the curve of the unfolding crisis. For too long policymakers continued to believe that the house-price bubble was an isolated aberration that would self-correct without impacting the wider economy, and that the unprecedented growth in household indebtedness was not a matter of concern. By the final quarter of last year, however, the global economy was in freefall, with industrial production, private demand, employment and broad GDP all contracting at a rate indicating something close to depression at hand. Policymakers suddenly went into corrective overdrive in late 2008--not a moment too soon.
The second-quarter GDP estimates for the U.S. show just how significant this aggressive front-loaded policy stimulus has been. While total GDP growth was sharply negative in the first quarter--around -5.6%--the rate of decline in the second quarter had moderated to around -1.5%. Credit this relative improvement to governmental monetary, fiscal and financial stimulus. The private components of GDP, private demand and capital expenditure, were actually still very weak. But government spending rose by 5.6%, breaking what otherwise would have been another quarter of headlong GDP contraction.
Necessary as the stimulus has been, it cannot go on indefinitely. Governments cannot run deficits of 10% or more of GDP, and they cannot go on doubling the monetary base, without eventually stoking inflation expectations, pushing up long-term interest rates and eventually eroding their very viability as sovereign borrowers. Not even the U.S. can do that.
The fiscal implications of the current policy package are particularly serious. For the time being, fiscal policy has been put at the service of survival, but the current price of survival is that net public debt is going to double as a share of GDP between 2008 and 2014. Even using the very optimistic forecasts of the Congressional Budget Office, which anticipate growth of around 4% over the next few years, the net debt burden will rise from 40% of GDP to 80%--that's an increase in the debt stock of about $9 trillion. The interest charge alone on that increased debt will be in the region of $300 billion to $400 billion a year, which in turn may mean more borrowing to pay the interest if primary deficits are not reduced. When governments reach the point where they are borrowing to pay the interest on their borrowing they are coming dangerously close to running a sovereign Ponzi scheme.
Ponzi schemes have a way of ending unhappily. To get out of the Ponzi trap, governments will have to raise taxes, or cut spending, or monetize the debt--or most likely do some combination of all three.
Monetization is already happening. This is where a government effectively prints money by allowing the central bank to create base money that is used to buy government debt, thereby increasing liquidity and holding down long-term interest rates (because the additional demand for these securities pushes up bond prices, thereby lowering the real interest rate the securities pay, as well as putting money into the pockets of the investors who have sold the securities).
Over time, monetization is inflationary, but the inflationary effect is insidious because it is not immediately visible. In the short run deflation will outplay inflation. In most developed countries today there is so much slack in economies, with weak demand and high unemployment, that prices cannot rise. The velocity of money is also weak, as financial institutions are receiving liquidity from central banks and hoarding it to rebuild their balance sheets, instead of lending it out. But as the economy recovers, these effects will abate, and the growth of the monetary base caused by monetization will eventually drive expected and actual inflation. And once markets start to anticipate that scenario, it may already be too late to avert an inflationary surge.
Simply issuing debt in the form of Treasury bonds offers no escape. The more debt a government issues, the higher the risk it will eventually face refinancing problems and/or default on that debt. Accordingly, investors will demand a higher return for investing in that debt, and that in turn will push up rates. Independent rating agencies have already downgraded the sovereign risk rating of countries like Greece and Ireland, and it cannot be ruled out that core economies of the OECD, including the U.S., could eventually be downgraded.
As it happens, there is little sign today of investors demanding a significantly higher risk premium on U.S. government debt. That is partly because private savings are increasing: Those savings have to be invested somewhere and investors are cautious about alternative investments. Foreign demand for U.S. bonds also remains robust so far. But this demand is unlikely to survive another big round of government-financed stimulus and bailout spending. And unfortunately, such a spending round is rather likely.
Consider that by the end of 2010 most of the tax cuts legislated by the Bush administration in 2001 and 2003 are due to expire. This means that there will be a sharp tax hike, including income taxes, capital gains taxes and taxes on dividends and estates. This hike--equivalent to around 1.5% to 2% of GDP--is already factored in to future calculations of government indebtedness. So if by next year the recovery proves as anemic as I expect, and if unemployment is around 10.5%-11%, as I also expect, then the pressure for another stimulus round early in 2010 will be strong.
A rough calculation goes like this: Stimulus money to keep the lid on rising unemployment is likely to be around $200 billion. Add to that the likely temporary partial extension of the Bush tax cuts and funding of the current administration's plans for universal health care (an additional bill of around $1.5 trillion over 10 years) and you get deficits close to12% of GDP.
This amounts to a fiscal train wreck. For the U.S., it means deficits could remain over 10% of GDP for years. Bond issuance will remain enormous, and it will mean that the Fed will almost certainly have to monetize a proportion of the debt by buying even more government or government-backed securities.
A combination of higher official indebtedness and monetization has the potential to yield the worst of all worlds, pushing up long-term rates and generating increased inflation expectations before a convincing return to growth takes hold. An early return to higher long-term rates will crowd out private demand, as lending rates on mortgages and personal and corporate loans rise too. It is unlikely that actual inflation will emerge this year or even next, but inflation expectations as reflected in long-term interest rates could well be rising later in 2010. This would represent a serious threat to economic recovery, which is predicated on the idea that the actual borrowing rates that individuals and businesses pay will remain low for an extended period.
Yet the alternative--the early withdrawal of the stimulus drug that governments have been dispensing so freely--is even more serious. The present administration believes that deflation is a worse threat than inflation. They are right to think that. Trying to rebuild public finances at a deflationary moment--a time when unemployment is rising, and private demand is still contracting--could be catastrophic, turning recovery into renewed recession.
History offers more than one example of this error. It happened in Japan in the late 1990s when the Japanese government feared the effects of fiscal deficits and of an increase in inflation as the economy was beginning to recover after almost a decade of deflation. Consumption taxes were raised too soon and the "zero interest rate policy" was abandoned. Within a year the economy was back in recession.
It also happened in the U.S. in the 1930s. President Roosevelt instituted a massive stimulus package when he came to office in 1933, to push the U.S. economy out of the depression, but by 1937 the administration was worrying that inflation was returning and that deficits were too large; so it cut spending and raised rates and the Fed tightened monetary policy. By 1938 the economy was heading back into near-depression.
So policymakers are between a rock and a hard place. Stop spending now and risk renewed recession and deeper deflation (stag-deflation). Keep spending now and risk renewed recession amid rising inflation expectations (stagflation).
Yet there is a space between the rock and the hard place. It is not a big space, but it is there.
Governments will have to manage perceptions. Today investors remain willing to bankroll federal spending without any clear or firm indication of how the fiscal crisis--and it is a crisis of extraordinary proportions--is going to be dealt with. That won't last. Clear indications will soon be needed as to how and when public finances will be repaired. That doesn't have to be accomplished soon--but it does have to be communicated soon.
Monetary policy can most likely remain looser for longer (in the developed economies at least)--as long as there is a clear commitment to fiscal consolidation. But a credible fiscal commitment to medium-term fiscal sustainability is vital, because that is what will open up the very narrow window that is the exit route from our current and unsustainable spend-and-borrow economy.
Nouriel Roubini, a professor at the Stern Business School at New York University and chairman of Roubini Global Economics, is a weekly columnist for Forbes.
Friday, August 28, 2009
Roubini sees "big risk" of double-dip recession
http://www.reuters.com/article/newsOne/idUSTRE57M29R20090823
Roubini sees "big risk" of double-dip recession: report
Sun Aug 23, 2009
NEW YORK (Reuters) - Nouriel Roubini, one of the few economists who accurately predicted the magnitude of the world's recent financial troubles, sees a "big risk" of a double-dip recession, according to an opinion piece posted on the Financial Times' website on Sunday.
Roubini, a professor at New York University's Stern School of Business, said it appears the global economy will bottom out in the second half of this year, and that U.S. and western European economies will likely experience "anemic" and "below trend" growth for at least a couple of years.
Yet he warned that policymakers face a "damned if they do and damned if they don't" conundrum in trying to unwind their massive fiscal and monetary stimuli to keep the global economy from toppling into a depression.
He said that if policymakers try to fight rising budget deficits by raising taxes and cutting spending, they could undermine any recovery.
On the other hand, he said if they maintain large deficits, worries about excessive inflation will grow, causing bond yields and borrowing rates to rise and perhaps choking off economic growth.
Roubini said another reason to worry is that energy, food and oil prices are rising faster than fundamentals warrant, and could be driven higher by speculation or if excessive liquidity creates artificially high demand.
He said the global economy "could not withstand another contractionary shock" if speculation drives oil rapidly toward $100 per barrel. U.S. crude oil futures traded Friday at about $73.83.
Roubini said the anemic growth he expects would follow a couple of quarters of rapid growth, as inventories and production levels recover from near-depression levels.
(Reporting by Jonathan Stempel; Editing by Diane Craft)
Roubini sees "big risk" of double-dip recession: report
Sun Aug 23, 2009
NEW YORK (Reuters) - Nouriel Roubini, one of the few economists who accurately predicted the magnitude of the world's recent financial troubles, sees a "big risk" of a double-dip recession, according to an opinion piece posted on the Financial Times' website on Sunday.
Roubini, a professor at New York University's Stern School of Business, said it appears the global economy will bottom out in the second half of this year, and that U.S. and western European economies will likely experience "anemic" and "below trend" growth for at least a couple of years.
Yet he warned that policymakers face a "damned if they do and damned if they don't" conundrum in trying to unwind their massive fiscal and monetary stimuli to keep the global economy from toppling into a depression.
He said that if policymakers try to fight rising budget deficits by raising taxes and cutting spending, they could undermine any recovery.
On the other hand, he said if they maintain large deficits, worries about excessive inflation will grow, causing bond yields and borrowing rates to rise and perhaps choking off economic growth.
Roubini said another reason to worry is that energy, food and oil prices are rising faster than fundamentals warrant, and could be driven higher by speculation or if excessive liquidity creates artificially high demand.
He said the global economy "could not withstand another contractionary shock" if speculation drives oil rapidly toward $100 per barrel. U.S. crude oil futures traded Friday at about $73.83.
Roubini said the anemic growth he expects would follow a couple of quarters of rapid growth, as inventories and production levels recover from near-depression levels.
(Reporting by Jonathan Stempel; Editing by Diane Craft)
Friday, May 22, 2009
Yuan 'set to usurp US dollar' as reserve currency
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/5325805/Chinas-yuan-set-to-usurp-US-dollar-as-worlds-reserve-currency.html
China's yuan 'set to usurp US dollar' as world's reserve currency
The Chinese yuan is preparing to overtake the US dollar as the world's reserve currency, economist Nouriel Roubini has warned.
By James Quinn, Wall Street Correspondent
15 May 2009
Professor Roubini, of New York University's Stern business school, believes that while such a major change is some way off, the Chinese government is laying the ground for the yuan's ascendance.
Known as "Dr Doom" for his negative stance, Prof Roubini argues that China is better placed than the US to provide a reserve currency for the 21st century because it has a large current account surplus, focused government and few of the economic worries the US faces.
In a column in the New York Times, Prof Roubini warns that with the proposal for a new international reserve currency via the International Monetary Fund, Beijing has already begun to take steps to usurp the greenback.
China will soon want to see the yuan included in the International Monetary Fund's special drawing rights "basket", he warns, as well as seeing it "used as a means of payment in bilateral trade."
Prof Roubini's warning followed the US government's latest economic data that showed producer prices in April experienced their biggest year-on-year drop since 1950, falling 3.7pc.
The number of Americans claiming unemployment benefit for the first time rose by 32,000 to 637,000 in the week to May 9. The increase meant the total number of people claiming benefits stood at to 6.56m, a record high for the 15th consecutive week in a row.
But neither the gloomy data, nor Prof Roubini's verdict on the greenback's future, held back the markets. The Dow Jones traded up 59.89 at 8344.78 in lunchtime trading.
China's yuan 'set to usurp US dollar' as world's reserve currency
The Chinese yuan is preparing to overtake the US dollar as the world's reserve currency, economist Nouriel Roubini has warned.
By James Quinn, Wall Street Correspondent
15 May 2009
Professor Roubini, of New York University's Stern business school, believes that while such a major change is some way off, the Chinese government is laying the ground for the yuan's ascendance.
Known as "Dr Doom" for his negative stance, Prof Roubini argues that China is better placed than the US to provide a reserve currency for the 21st century because it has a large current account surplus, focused government and few of the economic worries the US faces.
In a column in the New York Times, Prof Roubini warns that with the proposal for a new international reserve currency via the International Monetary Fund, Beijing has already begun to take steps to usurp the greenback.
China will soon want to see the yuan included in the International Monetary Fund's special drawing rights "basket", he warns, as well as seeing it "used as a means of payment in bilateral trade."
Prof Roubini's warning followed the US government's latest economic data that showed producer prices in April experienced their biggest year-on-year drop since 1950, falling 3.7pc.
The number of Americans claiming unemployment benefit for the first time rose by 32,000 to 637,000 in the week to May 9. The increase meant the total number of people claiming benefits stood at to 6.56m, a record high for the 15th consecutive week in a row.
But neither the gloomy data, nor Prof Roubini's verdict on the greenback's future, held back the markets. The Dow Jones traded up 59.89 at 8344.78 in lunchtime trading.
Thursday, March 19, 2009
US Recession Could Last Up to 36 Months: Roubini
http://www.cnbc.com/id/29598949
US Recession Could Last Up to 36 Months: Roubini
Jane Wells, Correspondent
09 Mar 2009
The man who predicted the current financial crisis said the US recession could drag on for years without drastic action.
Among his solutions: fix the housing market by breaking "every mortgage contract."
"We are in the 15th month of a recession," said Nouriel Roubini, a professor at New York University's Stern School of Business, told CNBC in a live interview. "Growth is going to be close to zero and unemployment rate well above 10 percent into next year."
Echoing a speech he made earlier in the day, Roubini said he sees "no hope for the recession ending in 2009 and will more than likely last into 2010."
Roubini, who is also known as "Dr. Doom," told CNBC that the risk of a total meltdown has been reversed for now but that the economy is going through "a death by a thousand cuts." He also said that "most of the U.S. financial institutions are entirely insolvent."
"The market friendly view for the banks is nationalization," said Roubini. "Temporarily take over the banks, clean them up and get them working again."
As for the claim that the Treasury Department can't legally take over the banks, Roubini said that most of the banks are already owned by the government and that the government could "put them in receivership" if it had to.
Earlier in the day, Roubini spoke to the CBOE Risk Management Conference and said he believes total losses could peak at $3.6 trillion in the financial system, with half of that being borne by banks and bank dealers and the other half borne by hedge funds and pension funds, among others.
He said that while U.S. GDP next year could be zero, global GDP could dip into negative territory.
"We could end up ... with a 36-month recession, that could be "L-shaped stagnation, or near depression," Roubini said. He puts the chance of a severe U-shaped recession at 66.7 percent, and a more severe L-shaped recession at 33.3 percent.
Roubini listed a litany of negative omens: Capex spending down 20-30 percent for investment grade companies, self-perpetuating deflation, all making a bad situation worse.
"If you expect prices to be lower tomorrow, why would you buy today?", asked Roubini. He says it's easier to break out of am inflationary cycle than a deflationary one, and while a year of deflation "is okay," longer would be "a disaster."
So what can the government do? The easy part is lowering interest rates and buying toxic assets. The hard part, he says, will be tackling housing. Roubini says that the housing market, like a company restructuring in bankruptcy, needs to have "face value reduction of the debt." Rather than go through mortgages one by one, he says reduction has to be "across the board...break every mortgage contract."
Roubini also took issue with the $800 billion stimulus package, saying it's not enough. For one thing, there's only $200 billion upfront, and half of that is a tax cut, which Roubini calls "a waste of money" that is not going to make a difference.
Finally, while he says there will be "a light at the end of the tunnel", it'll probably get worse before it gets better. Those who believe in a second half recovery this year "are delusional" he says.
In fact, based on Roubini's calculations, we could conceivably see the S&P 500 at 500, the Dow at 5000.
US Recession Could Last Up to 36 Months: Roubini
Jane Wells, Correspondent
09 Mar 2009
The man who predicted the current financial crisis said the US recession could drag on for years without drastic action.
Among his solutions: fix the housing market by breaking "every mortgage contract."
"We are in the 15th month of a recession," said Nouriel Roubini, a professor at New York University's Stern School of Business, told CNBC in a live interview. "Growth is going to be close to zero and unemployment rate well above 10 percent into next year."
Echoing a speech he made earlier in the day, Roubini said he sees "no hope for the recession ending in 2009 and will more than likely last into 2010."
Roubini, who is also known as "Dr. Doom," told CNBC that the risk of a total meltdown has been reversed for now but that the economy is going through "a death by a thousand cuts." He also said that "most of the U.S. financial institutions are entirely insolvent."
"The market friendly view for the banks is nationalization," said Roubini. "Temporarily take over the banks, clean them up and get them working again."
As for the claim that the Treasury Department can't legally take over the banks, Roubini said that most of the banks are already owned by the government and that the government could "put them in receivership" if it had to.
Earlier in the day, Roubini spoke to the CBOE Risk Management Conference and said he believes total losses could peak at $3.6 trillion in the financial system, with half of that being borne by banks and bank dealers and the other half borne by hedge funds and pension funds, among others.
He said that while U.S. GDP next year could be zero, global GDP could dip into negative territory.
"We could end up ... with a 36-month recession, that could be "L-shaped stagnation, or near depression," Roubini said. He puts the chance of a severe U-shaped recession at 66.7 percent, and a more severe L-shaped recession at 33.3 percent.
Roubini listed a litany of negative omens: Capex spending down 20-30 percent for investment grade companies, self-perpetuating deflation, all making a bad situation worse.
"If you expect prices to be lower tomorrow, why would you buy today?", asked Roubini. He says it's easier to break out of am inflationary cycle than a deflationary one, and while a year of deflation "is okay," longer would be "a disaster."
So what can the government do? The easy part is lowering interest rates and buying toxic assets. The hard part, he says, will be tackling housing. Roubini says that the housing market, like a company restructuring in bankruptcy, needs to have "face value reduction of the debt." Rather than go through mortgages one by one, he says reduction has to be "across the board...break every mortgage contract."
Roubini also took issue with the $800 billion stimulus package, saying it's not enough. For one thing, there's only $200 billion upfront, and half of that is a tax cut, which Roubini calls "a waste of money" that is not going to make a difference.
Finally, while he says there will be "a light at the end of the tunnel", it'll probably get worse before it gets better. Those who believe in a second half recovery this year "are delusional" he says.
In fact, based on Roubini's calculations, we could conceivably see the S&P 500 at 500, the Dow at 5000.
Tuesday, February 10, 2009
Roubini Sees Global Gloom After Davos Vindication
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a6A9lCHrtAqk
Roubini Sees Global Gloom After Davos Vindication
By Simon Kennedy
Jan. 30 (Bloomberg) -- At the World Economic Forum two years ago, Nouriel Roubini warned that record profits and bonuses were obscuring a “hard landing” to come. “I really disagree,” countered Jacob Frenkel, the American International Group Inc. vice chairman and former Israeli central banker.
No more. “Roubini was intellectually courageous, and he called the shots correctly,” says Frenkel, whose AIG survives only on the basis of more than $100 billion of government loans. “He gained credibility, and he deserves it.”
This week, New York University’s Roubini returned to the WEF and the Swiss ski resort of Davos as the prophet of the worst economic and financial crisis since the Great Depression - - joining the ranks of previous “Dr. Dooms” who made their names through contrarian calls that proved correct.
Even as he wins plaudits for his prescience, Roubini, 50, says worse lies ahead. Banks face bigger credit losses than they realize, more financial companies will require state takeovers and the world economy will keep shrinking throughout 2009, he says.
“The consensus is catching up with me, but it’s still behind,” Roubini said in an interview in Davos. “I don’t know what some people are smoking.”
‘Catastrophic’
As long ago as February 2007, Roubini was writing on his blog that “the party will soon be over,” and warning of “painful consequences for the U.S. and the global economy.” By last February, his tone had become apocalyptic, raising the specter of a “catastrophic” meltdown that central banks would fail to prevent, triggering the bankruptcy of large banks with mortgage holdings and a “sharp drop” in equities.
The next month, Bear Stearns Cos. failed, to be taken over by JPMorgan Chase & Co. in a government-backed deal. Then, in September, Lehman Brothers Holdings Inc. went bankrupt, prompting banks to hoard cash and depriving businesses and households of access to capital. The U.S. took over AIG, Fannie Mae and Freddie Mac, and the Standard & Poor’s 500 Index suffered its worst year since 1937.
“I was intellectually vindicated,” Roubini says. “But I was vindicated by having an economic disaster which has political and social consequences.”
Predecessors
Roubini’s predecessors in the role of economic nay-sayer include some well-known names: Joseph Granville, publisher of the Granville Market Letter, who forecast the stock-market declines of 1976 and 2000; Henry Kaufman, who as a managing director at Salomon Brothers projected rising interest rates that led to a U.S. recession in the early 1980s; Marc Faber, publisher of the Gloom, Boom & Doom Report, who predicted the 1987 stock crash; and Yale University’s Robert Shiller, a former colleague of Roubini’s, who forecast the end of the dot-com bubble in his 2000 book “Irrational Exuberance” and said in a second edition in 2005 that the U.S. housing market had undergone the biggest speculative boom in U.S. history.
Granville, 85, says the key to being an outlier is not to doubt your analysis.
“I don’t have anything to do with emotion,” says Granville, who’s based in Kansas City. “Keep your head, follow the numbers and ignore the rest.”
Roubini was born in Istanbul, the son of an importer- exporter of carpets, and spent his childhood in Israel, Iran and Italy. It was while living in Milan from 1962 to 1982, he says, that he became attracted to economics: “Economics had the tools to understand the world, and not just understand it but also change it for the better.”
International Economics
After a year at the Hebrew University of Jerusalem, he earned an economics degree at Milan’s Universita’ L. Bocconi and then his Ph.D. at Harvard University in 1988, where he specialized in international economics.
Jeffrey Sachs, he says, became his “role model” at Harvard by demonstrating that economists could shape public policy -- as Sachs did by lobbying for poor countries to have their debts relieved by richer governments. Sachs is now a professor at Columbia University.
“You sensed there was something beyond academia, that you have to figure out the big issues of the global economy,” says Roubini. “You have to be engaged, and can’t just be in an ivory tower.”
For much of the 1990s, Roubini combined academic research and policy-making by teaching at Yale and then in New York, while also spending time at the International Monetary Fund, the Federal Reserve, World Bank and Bank of Israel.
Joining Clinton
By 1998 he had attracted the attention of President Bill Clinton’s administration, joining it first as a senior economist in the White House Council of Economic Advisers and then moving to the Treasury department as a senior adviser to Timothy Geithner, then the undersecretary for international affairs and now Treasury secretary in the Obama administration.
Roubini returned to the IMF in 2001 as a visiting scholar while it battled a financial meltdown in Argentina. He co-wrote a book on saving bankrupt economies entitled “Bailouts or Bail- ins?” and opened his own global consulting firm, which now employs two dozen economists and publishes a popular Web site and blog.
“Nouriel has a rare combination of economics and the real world, and so has great insight because of that,” says Shiller. “He looks into the details and rolls up his sleeves.”
Roubini says working on emerging-market blowouts in Asia and Latin America allowed him to spot the looming disaster in the U.S. “I’ve been studying emerging markets for 20 years, and saw the same signs in the U.S. that I saw in them, which was that we were in a massive credit bubble,” he says.
Still a Pessimist
With that bubble now popped, Roubini remains more pessimistic than economists elsewhere. The IMF forecasts global growth of 0.5 percent this year and bank losses from toxic U.S.- originated assets of $2.2 trillion. By contrast, Roubini sees the global economy shrinking this year, and banks writing down at least $3.6 trillion -- compared to the $1.1 trillion disclosed so far.
While the U.S. government is resisting nationalizing its biggest banks, Roubini says it will have no choice because they are now “effectively insolvent.” And the outcome may be even worse than even he anticipates if governments fail to take aggressive steps to recapitalize banks and revive their economies, he says: “The risk of a near-depression shouldn’t be underestimated.”
Roubini, who’s now working on a book about the crisis, says he takes no particular pleasure in his role as Dr. Doom or the attention it brings him.
“I’m not a permanent bear,” he says. “I’ll be the first to call a recovery, but I just don’t see it yet, and it’s getting uglier.”
Roubini Sees Global Gloom After Davos Vindication
By Simon Kennedy
Jan. 30 (Bloomberg) -- At the World Economic Forum two years ago, Nouriel Roubini warned that record profits and bonuses were obscuring a “hard landing” to come. “I really disagree,” countered Jacob Frenkel, the American International Group Inc. vice chairman and former Israeli central banker.
No more. “Roubini was intellectually courageous, and he called the shots correctly,” says Frenkel, whose AIG survives only on the basis of more than $100 billion of government loans. “He gained credibility, and he deserves it.”
This week, New York University’s Roubini returned to the WEF and the Swiss ski resort of Davos as the prophet of the worst economic and financial crisis since the Great Depression - - joining the ranks of previous “Dr. Dooms” who made their names through contrarian calls that proved correct.
Even as he wins plaudits for his prescience, Roubini, 50, says worse lies ahead. Banks face bigger credit losses than they realize, more financial companies will require state takeovers and the world economy will keep shrinking throughout 2009, he says.
“The consensus is catching up with me, but it’s still behind,” Roubini said in an interview in Davos. “I don’t know what some people are smoking.”
‘Catastrophic’
As long ago as February 2007, Roubini was writing on his blog that “the party will soon be over,” and warning of “painful consequences for the U.S. and the global economy.” By last February, his tone had become apocalyptic, raising the specter of a “catastrophic” meltdown that central banks would fail to prevent, triggering the bankruptcy of large banks with mortgage holdings and a “sharp drop” in equities.
The next month, Bear Stearns Cos. failed, to be taken over by JPMorgan Chase & Co. in a government-backed deal. Then, in September, Lehman Brothers Holdings Inc. went bankrupt, prompting banks to hoard cash and depriving businesses and households of access to capital. The U.S. took over AIG, Fannie Mae and Freddie Mac, and the Standard & Poor’s 500 Index suffered its worst year since 1937.
“I was intellectually vindicated,” Roubini says. “But I was vindicated by having an economic disaster which has political and social consequences.”
Predecessors
Roubini’s predecessors in the role of economic nay-sayer include some well-known names: Joseph Granville, publisher of the Granville Market Letter, who forecast the stock-market declines of 1976 and 2000; Henry Kaufman, who as a managing director at Salomon Brothers projected rising interest rates that led to a U.S. recession in the early 1980s; Marc Faber, publisher of the Gloom, Boom & Doom Report, who predicted the 1987 stock crash; and Yale University’s Robert Shiller, a former colleague of Roubini’s, who forecast the end of the dot-com bubble in his 2000 book “Irrational Exuberance” and said in a second edition in 2005 that the U.S. housing market had undergone the biggest speculative boom in U.S. history.
Granville, 85, says the key to being an outlier is not to doubt your analysis.
“I don’t have anything to do with emotion,” says Granville, who’s based in Kansas City. “Keep your head, follow the numbers and ignore the rest.”
Roubini was born in Istanbul, the son of an importer- exporter of carpets, and spent his childhood in Israel, Iran and Italy. It was while living in Milan from 1962 to 1982, he says, that he became attracted to economics: “Economics had the tools to understand the world, and not just understand it but also change it for the better.”
International Economics
After a year at the Hebrew University of Jerusalem, he earned an economics degree at Milan’s Universita’ L. Bocconi and then his Ph.D. at Harvard University in 1988, where he specialized in international economics.
Jeffrey Sachs, he says, became his “role model” at Harvard by demonstrating that economists could shape public policy -- as Sachs did by lobbying for poor countries to have their debts relieved by richer governments. Sachs is now a professor at Columbia University.
“You sensed there was something beyond academia, that you have to figure out the big issues of the global economy,” says Roubini. “You have to be engaged, and can’t just be in an ivory tower.”
For much of the 1990s, Roubini combined academic research and policy-making by teaching at Yale and then in New York, while also spending time at the International Monetary Fund, the Federal Reserve, World Bank and Bank of Israel.
Joining Clinton
By 1998 he had attracted the attention of President Bill Clinton’s administration, joining it first as a senior economist in the White House Council of Economic Advisers and then moving to the Treasury department as a senior adviser to Timothy Geithner, then the undersecretary for international affairs and now Treasury secretary in the Obama administration.
Roubini returned to the IMF in 2001 as a visiting scholar while it battled a financial meltdown in Argentina. He co-wrote a book on saving bankrupt economies entitled “Bailouts or Bail- ins?” and opened his own global consulting firm, which now employs two dozen economists and publishes a popular Web site and blog.
“Nouriel has a rare combination of economics and the real world, and so has great insight because of that,” says Shiller. “He looks into the details and rolls up his sleeves.”
Roubini says working on emerging-market blowouts in Asia and Latin America allowed him to spot the looming disaster in the U.S. “I’ve been studying emerging markets for 20 years, and saw the same signs in the U.S. that I saw in them, which was that we were in a massive credit bubble,” he says.
Still a Pessimist
With that bubble now popped, Roubini remains more pessimistic than economists elsewhere. The IMF forecasts global growth of 0.5 percent this year and bank losses from toxic U.S.- originated assets of $2.2 trillion. By contrast, Roubini sees the global economy shrinking this year, and banks writing down at least $3.6 trillion -- compared to the $1.1 trillion disclosed so far.
While the U.S. government is resisting nationalizing its biggest banks, Roubini says it will have no choice because they are now “effectively insolvent.” And the outcome may be even worse than even he anticipates if governments fail to take aggressive steps to recapitalize banks and revive their economies, he says: “The risk of a near-depression shouldn’t be underestimated.”
Roubini, who’s now working on a book about the crisis, says he takes no particular pleasure in his role as Dr. Doom or the attention it brings him.
“I’m not a permanent bear,” he says. “I’ll be the first to call a recovery, but I just don’t see it yet, and it’s getting uglier.”
Sunday, December 21, 2008
IMF Chief Warns Of Riots To Economic Crisis
http://www.prisonplanet.com/imf-chief-warns-of-riots-in-response-to-economic-crisis.html
IMF Chief Warns Of Riots In Response To Economic Crisis
Strauss-Kahn says advanced countries would see violent civil unrest if elite continue to exploit financial chaos for their own ends
Paul Joseph Watson
Prison Planet.com
Wednesday, December 17, 2008
The head of the International Monetary Fund has warned that advanced nations will be hit by violent civil unrest if the elite continue to restructure the economy around their own interests while looting the taxpayer.
During a speech in Madrid, Dominique Strauss-Kahn said that “social unrest may happen in many countries - including advanced economies” if governments failed to adequately respond to the financial crisis.
“He added that violent protests could break out in countries worldwide if the financial system was not restructured to benefit everyone rather than a small elite,” reports the Guardian.
Strauss-Kahn’s comments echo those of others who have cautioned that civil unrest could arise, specifically in the U.S., as a result of the wholesale looting of the taxpayer and the devaluation of the dollar.
Widely respected trends forecaster Gerald Celente recently told Fox News that by 2012 America will become an undeveloped nation, that there will be a revolution marked by food riots, squatter rebellions, tax revolts and job marches, and that holidays will be more about obtaining food, not gifts.
Back in October, Senator Chris Dodd said that revolution would unfold if banks refused to lend money.
“If it turns out that they are hoarding, you’ll have a revolution on your hands. People will be so livid and furious that their tax money is going to line their pockets instead of doing the right thing. There will be hell to pay,” Dodd told the New York Times.
Last month, leading economist Nouriel Roubini said that food riots would be the ultimate consequence of the Federal Reserve and the Treasury’s current policies.
Riots and demonstrations have gripped normally sedate Iceland following a financial catastrophe that has wiped out half of the krona’s value and put one third of the population at risk of losing their homes and life savings.
Expectations of violent civil unrest have not gone unnoticed by the U.S. Army War College’s Strategic Institute, who recently issued a report warning that the United States may experience massive civil unrest in the wake of a series of crises which it terms “strategic shock.”
The consequence? The necessity to use “military force against hostile groups inside the United States,” according to the report.
Tens of thousands of active duty military personnel returning from Afghanistan and Iraq are set to conduct “homeland patrols” inside the U.S. and their duties will include tackling “civil unrest and crowd control,” according to a Northcom announcement earlier this year.
IMF Chief Warns Of Riots In Response To Economic Crisis
Strauss-Kahn says advanced countries would see violent civil unrest if elite continue to exploit financial chaos for their own ends
Paul Joseph Watson
Prison Planet.com
Wednesday, December 17, 2008
The head of the International Monetary Fund has warned that advanced nations will be hit by violent civil unrest if the elite continue to restructure the economy around their own interests while looting the taxpayer.
During a speech in Madrid, Dominique Strauss-Kahn said that “social unrest may happen in many countries - including advanced economies” if governments failed to adequately respond to the financial crisis.
“He added that violent protests could break out in countries worldwide if the financial system was not restructured to benefit everyone rather than a small elite,” reports the Guardian.
Strauss-Kahn’s comments echo those of others who have cautioned that civil unrest could arise, specifically in the U.S., as a result of the wholesale looting of the taxpayer and the devaluation of the dollar.
Widely respected trends forecaster Gerald Celente recently told Fox News that by 2012 America will become an undeveloped nation, that there will be a revolution marked by food riots, squatter rebellions, tax revolts and job marches, and that holidays will be more about obtaining food, not gifts.
Back in October, Senator Chris Dodd said that revolution would unfold if banks refused to lend money.
“If it turns out that they are hoarding, you’ll have a revolution on your hands. People will be so livid and furious that their tax money is going to line their pockets instead of doing the right thing. There will be hell to pay,” Dodd told the New York Times.
Last month, leading economist Nouriel Roubini said that food riots would be the ultimate consequence of the Federal Reserve and the Treasury’s current policies.
Riots and demonstrations have gripped normally sedate Iceland following a financial catastrophe that has wiped out half of the krona’s value and put one third of the population at risk of losing their homes and life savings.
Expectations of violent civil unrest have not gone unnoticed by the U.S. Army War College’s Strategic Institute, who recently issued a report warning that the United States may experience massive civil unrest in the wake of a series of crises which it terms “strategic shock.”
The consequence? The necessity to use “military force against hostile groups inside the United States,” according to the report.
Tens of thousands of active duty military personnel returning from Afghanistan and Iraq are set to conduct “homeland patrols” inside the U.S. and their duties will include tackling “civil unrest and crowd control,” according to a Northcom announcement earlier this year.
Monday, November 17, 2008
Doctor Doom
http://www.forbes.com/2008/11/12/recession-global-economy-oped-cx_nr_1113roubini.html
Doctor Doom
The Worst Is Not Behind Us
Nouriel Roubini
11.13.08
It is useful, at this juncture, to stand back and survey the economic landscape--both as it is now, and as it has been in recent months. So here is a summary of many of the points that I have made for the last few months on the outlook for the U.S. and global economy, as well as for financial markets:
--The U.S. will experience its most severe recession since World War II, much worse and longer and deeper than even the 1974-1975 and 1980-1982 recessions. The recession will continue until at least the end of 2009 for a cumulative gross domestic product drop of over 4%; the unemployment rate will likely reach 9%. The U.S. consumer is shopped-out, saving less and debt-burdened: This will be the worst consumer recession in decades.
--The prospect of a short and shallow six- to eight-month V-shaped recession is out of the window; a U-shaped 18- to 24-month recession is now a certainty, and the probability of a worse, multi-year L-shaped recession (as in Japan in the 1990s) is still small but rising. Even if the economy were to exit a recession by the end of 2009, the recovery could be so weak because of the impairment of the financial system and the credit mechanism that it may feel like a recession even if the economy is technically out of the recession.
--Obama will inherit an economic and financial mess worse than anything the U.S. has faced in decades: the most severe recession in 50 years; the worst financial and banking crisis since the Great Depression; a ballooning fiscal deficit that may be as high as a trillion dollars in 2009 and 2010; a huge current account deficit; a financial system that is in a severe crisis and where deleveraging is still occurring at a very rapid pace, thus causing a worsening of the credit crunch; a household sector where millions of households are insolvent, into negative equity territory and on the verge of losing their homes; a serious risk of deflation as the slack in goods, labor and commodity markets becomes deeper; the risk that we will end in a deflationary liquidity trap as the Fed is fast approaching the zero-bound constraint for the Fed funds rate; the risk of a severe debt deflation as the real value of nominal liabilities will rise, given price deflation, while the value of financial assets is still plunging.
--The world economy will experience a severe recession: Output will sharply contract in the Eurozone, the U.K. and the rest of Europe, as well as in Canada, Japan and Australia/New Zealand. There is also a risk of a hard landing in emerging market economies. Expect global growth--at market prices--to be close to zero in Q3 and negative by Q4. Leaving aside the effects of the fiscal stimulus, China could face a hard landing growth rate of 6% in 2009. The global recession will continue through most of 2009.
--The advanced economies will face stag-deflation (stagnation/recession and deflation) rather than stagflation, as the slack in goods, labor and commodity markets will lead advanced economies' inflation rates to become below 1% by 2009.
--Expect a few advanced economies (certainly the U.S. and Japan and possibly others) to reach the zero-bound constraint for policy rates by early 2009. With deflation on the horizon, zero-bound on interest rates implies the risk of a liquidity trap where money and bonds become perfectly substitutable, where real interest rates become high and rising, thus further pushing down aggregate demand, and where money market fund returns cannot even cover their management costs.
Deflation also implies a debt deflation where the real value of nominal debts is rising, thus increasing the real burden of such debts. Monetary policy easing will become more aggressive in other advanced economies even if the European Central Bank cuts too little too late. But monetary policy easing will be scarcely effective, as it will be pushing on a string, given the glut of global aggregate supply relative to demand--and given a very severe credit crunch.
--For 2009, the consensus estimates for earnings are delusional: Current consensus estimates are that S&P 500 earnings per share (EPS) will be $90 in 2009, up 15% from 2008. Such estimates are outright silly. If EPS falls--as is most likely--to a level of $60, then with a price-to-earnings (P/E) ratio of 12, the S&P 500 index could fall to 720 (i.e. about 20% below current levels).
If the P/E falls to 10--as is possible in a severe recession--the S&P could be down to 600, or 35% below current levels.
And in a very severe recession, one cannot exclude that EPS could fall as low as $50 in 2009, dragging the S&P 500 index to as low as 500. So, even based on fundamentals and valuations, there are significant downside risks to U.S. equities (20% to 40%).
Similar arguments can be made for global equities: A severe global recession implies further downside risks to global equities in the order of 20% to 30%.Thus, the recent rally in U.S. and global equities was only a bear-market sucker's rally that is already fizzling out--buried under a mountain of worse-than-expected macro, earnings and financial news.
--Credit losses will be well above $1 trillion and closer to $2 trillion, as such losses will spread from subprime to near-prime and prime mortgages and home equity loans (and the related securitized products); to commercial real estate, to credit cards, auto loans and student loans; to leveraged loans and LBOs, to muni bonds, corporate bonds, industrial and commercial loans and credit default swaps. These credit losses will lead to a severe credit crunch, absent a rapid and aggressive recapitalization of financial institutions.
--Almost all of the $700 billion in the TARP program will be used to recapitalize U.S. financial institutions (banks, broker dealers, insurance companies, finance companies) as rising credit losses (close to $2 trillion) will imply that the initial $250 billion allocated to recap these institutions will not be enough. Sooner rather than later, a TARP-2 will become necessary, as the recapitalization needs of U.S. financial institutions will likely be well above $1 trillion.
--Current spreads on speculative-grade bonds may widen further as a tsunami of defaults will hit the corporate sector; investment-grade bond spreads have widened excessively relative to financial fundamentals, but further spread-widening is possible, driven by market dynamics, deleveraging and the fact that many AAA-rated firms (say, GE) are not really AAA, and should be downgraded by the rating agencies.
--Expect a U.S. fiscal deficit of almost $1 trillion in 2009 and 2010. The outlook for the U.S. current account deficit is mixed: The recession, a rise in private savings and a fall in investment, and a further fall in commodity prices will tend to shrink it, but a stronger dollar, global demand weakness and a larger U.S. fiscal deficit will tend to worsen it. On net, we will observe still-large U.S. twin fiscal and current account deficits--and less willingness and ability in the rest of the world to finance it unless the interest rate on such debt rises.
--In this economic and financial environment, it is wise to stay away from most risky assets for the next 12 months: There are downside risks to U.S. and global equities; credit spreads--especially for the speculative grade--may widen further; commodity prices will fall another 20% from current levels; gold will also fall as deflation sets in; the U.S. dollar may weaken further in the next six to 12 months as the factors behind the recent rally weather off, while medium-term bearish fundamentals for the dollar set in again; government bond yields in the U.S. and advanced economies may fall further as recession and deflation emerge but, over time, the surge in fiscal deficits in the U.S. and globally will reduce the supply of global savings and lead to higher long-term interest rates unless the fall in global real investment outpaces the fall in global savings.
Expect further downside risks to emerging-markets assets (in particular, equities and local and foreign currency debt), especially in economies with significant macro, policy and financial vulnerabilities. Cash and cash-like instruments (short-term dated government bonds and inflation-indexed bonds that do well both in inflation and deflation times) will dominate most risky assets.
So, serious risks and vulnerabilities remain, and the downside risks to financial markets (worse than expected macro news, earnings news and developments in systemically important parts of the global financial system) will, over the next few months, overshadow the positive news (G-7 policies to avoid a systemic meltdown, and other policies that--in due time--may reduce interbank spreads and credit spreads).
Beware, therefore, of those who tell you that we have reached a bottom for risky financial assets. The same optimists told you that we reached a bottom and the worst was behind us after the rescue of the creditors of Bear Stearns in March; after the announcement of the possible bailout of Fannie and Freddie in July; after the actual bailout of Fannie and Freddie in September; after the bailout of AIG in mid-September; after the TARP legislation was presented; and after the latest G-7 and E.U. action.
In each case, the optimists argued that the latest crisis and rescue policy response was the cathartic event that signaled the bottom of the crisis and the recovery of markets. They were wrong literally at least six times in a row as the crisis--as I have consistently predicted over the last year--became worse and worse. So enough of the excessive optimism that has been proved wrong at least six times in the last eight months alone.
A reality check is needed to assess risks--and to take appropriate action. And reality tells us that we barely avoided, only a week ago, a total systemic financial meltdown; that the policy actions are now finally more aggressive and systematic, and more appropriate; that it will take a long while for interbank and credit markets to mend; that further important policy actions are needed to avoid the meltdown and an even more severe recession; that central banks, instead of being the lenders of last resort, will be, for now, the lenders of first and only resort; that even if we avoid a meltdown, we will experience a severe U.S., advanced economy and, most likely, global recession, the worst in decades; that we are in the middle of a severe global financial and banking crisis, the worst since the Great Depression; and that the flow of macro, earnings and financial news will significantly surprise (as during the last few weeks) on the downside with significant further risks to financial markets.
I'll stop now.
Nouriel Roubini, a professor at the Stern Business School at New York University and chairman of Roubini Global Economics, is a weekly columnist for Forbes.com.
Doctor Doom
The Worst Is Not Behind Us
Nouriel Roubini
11.13.08
It is useful, at this juncture, to stand back and survey the economic landscape--both as it is now, and as it has been in recent months. So here is a summary of many of the points that I have made for the last few months on the outlook for the U.S. and global economy, as well as for financial markets:
--The U.S. will experience its most severe recession since World War II, much worse and longer and deeper than even the 1974-1975 and 1980-1982 recessions. The recession will continue until at least the end of 2009 for a cumulative gross domestic product drop of over 4%; the unemployment rate will likely reach 9%. The U.S. consumer is shopped-out, saving less and debt-burdened: This will be the worst consumer recession in decades.
--The prospect of a short and shallow six- to eight-month V-shaped recession is out of the window; a U-shaped 18- to 24-month recession is now a certainty, and the probability of a worse, multi-year L-shaped recession (as in Japan in the 1990s) is still small but rising. Even if the economy were to exit a recession by the end of 2009, the recovery could be so weak because of the impairment of the financial system and the credit mechanism that it may feel like a recession even if the economy is technically out of the recession.
--Obama will inherit an economic and financial mess worse than anything the U.S. has faced in decades: the most severe recession in 50 years; the worst financial and banking crisis since the Great Depression; a ballooning fiscal deficit that may be as high as a trillion dollars in 2009 and 2010; a huge current account deficit; a financial system that is in a severe crisis and where deleveraging is still occurring at a very rapid pace, thus causing a worsening of the credit crunch; a household sector where millions of households are insolvent, into negative equity territory and on the verge of losing their homes; a serious risk of deflation as the slack in goods, labor and commodity markets becomes deeper; the risk that we will end in a deflationary liquidity trap as the Fed is fast approaching the zero-bound constraint for the Fed funds rate; the risk of a severe debt deflation as the real value of nominal liabilities will rise, given price deflation, while the value of financial assets is still plunging.
--The world economy will experience a severe recession: Output will sharply contract in the Eurozone, the U.K. and the rest of Europe, as well as in Canada, Japan and Australia/New Zealand. There is also a risk of a hard landing in emerging market economies. Expect global growth--at market prices--to be close to zero in Q3 and negative by Q4. Leaving aside the effects of the fiscal stimulus, China could face a hard landing growth rate of 6% in 2009. The global recession will continue through most of 2009.
--The advanced economies will face stag-deflation (stagnation/recession and deflation) rather than stagflation, as the slack in goods, labor and commodity markets will lead advanced economies' inflation rates to become below 1% by 2009.
--Expect a few advanced economies (certainly the U.S. and Japan and possibly others) to reach the zero-bound constraint for policy rates by early 2009. With deflation on the horizon, zero-bound on interest rates implies the risk of a liquidity trap where money and bonds become perfectly substitutable, where real interest rates become high and rising, thus further pushing down aggregate demand, and where money market fund returns cannot even cover their management costs.
Deflation also implies a debt deflation where the real value of nominal debts is rising, thus increasing the real burden of such debts. Monetary policy easing will become more aggressive in other advanced economies even if the European Central Bank cuts too little too late. But monetary policy easing will be scarcely effective, as it will be pushing on a string, given the glut of global aggregate supply relative to demand--and given a very severe credit crunch.
--For 2009, the consensus estimates for earnings are delusional: Current consensus estimates are that S&P 500 earnings per share (EPS) will be $90 in 2009, up 15% from 2008. Such estimates are outright silly. If EPS falls--as is most likely--to a level of $60, then with a price-to-earnings (P/E) ratio of 12, the S&P 500 index could fall to 720 (i.e. about 20% below current levels).
If the P/E falls to 10--as is possible in a severe recession--the S&P could be down to 600, or 35% below current levels.
And in a very severe recession, one cannot exclude that EPS could fall as low as $50 in 2009, dragging the S&P 500 index to as low as 500. So, even based on fundamentals and valuations, there are significant downside risks to U.S. equities (20% to 40%).
Similar arguments can be made for global equities: A severe global recession implies further downside risks to global equities in the order of 20% to 30%.Thus, the recent rally in U.S. and global equities was only a bear-market sucker's rally that is already fizzling out--buried under a mountain of worse-than-expected macro, earnings and financial news.
--Credit losses will be well above $1 trillion and closer to $2 trillion, as such losses will spread from subprime to near-prime and prime mortgages and home equity loans (and the related securitized products); to commercial real estate, to credit cards, auto loans and student loans; to leveraged loans and LBOs, to muni bonds, corporate bonds, industrial and commercial loans and credit default swaps. These credit losses will lead to a severe credit crunch, absent a rapid and aggressive recapitalization of financial institutions.
--Almost all of the $700 billion in the TARP program will be used to recapitalize U.S. financial institutions (banks, broker dealers, insurance companies, finance companies) as rising credit losses (close to $2 trillion) will imply that the initial $250 billion allocated to recap these institutions will not be enough. Sooner rather than later, a TARP-2 will become necessary, as the recapitalization needs of U.S. financial institutions will likely be well above $1 trillion.
--Current spreads on speculative-grade bonds may widen further as a tsunami of defaults will hit the corporate sector; investment-grade bond spreads have widened excessively relative to financial fundamentals, but further spread-widening is possible, driven by market dynamics, deleveraging and the fact that many AAA-rated firms (say, GE) are not really AAA, and should be downgraded by the rating agencies.
--Expect a U.S. fiscal deficit of almost $1 trillion in 2009 and 2010. The outlook for the U.S. current account deficit is mixed: The recession, a rise in private savings and a fall in investment, and a further fall in commodity prices will tend to shrink it, but a stronger dollar, global demand weakness and a larger U.S. fiscal deficit will tend to worsen it. On net, we will observe still-large U.S. twin fiscal and current account deficits--and less willingness and ability in the rest of the world to finance it unless the interest rate on such debt rises.
--In this economic and financial environment, it is wise to stay away from most risky assets for the next 12 months: There are downside risks to U.S. and global equities; credit spreads--especially for the speculative grade--may widen further; commodity prices will fall another 20% from current levels; gold will also fall as deflation sets in; the U.S. dollar may weaken further in the next six to 12 months as the factors behind the recent rally weather off, while medium-term bearish fundamentals for the dollar set in again; government bond yields in the U.S. and advanced economies may fall further as recession and deflation emerge but, over time, the surge in fiscal deficits in the U.S. and globally will reduce the supply of global savings and lead to higher long-term interest rates unless the fall in global real investment outpaces the fall in global savings.
Expect further downside risks to emerging-markets assets (in particular, equities and local and foreign currency debt), especially in economies with significant macro, policy and financial vulnerabilities. Cash and cash-like instruments (short-term dated government bonds and inflation-indexed bonds that do well both in inflation and deflation times) will dominate most risky assets.
So, serious risks and vulnerabilities remain, and the downside risks to financial markets (worse than expected macro news, earnings news and developments in systemically important parts of the global financial system) will, over the next few months, overshadow the positive news (G-7 policies to avoid a systemic meltdown, and other policies that--in due time--may reduce interbank spreads and credit spreads).
Beware, therefore, of those who tell you that we have reached a bottom for risky financial assets. The same optimists told you that we reached a bottom and the worst was behind us after the rescue of the creditors of Bear Stearns in March; after the announcement of the possible bailout of Fannie and Freddie in July; after the actual bailout of Fannie and Freddie in September; after the bailout of AIG in mid-September; after the TARP legislation was presented; and after the latest G-7 and E.U. action.
In each case, the optimists argued that the latest crisis and rescue policy response was the cathartic event that signaled the bottom of the crisis and the recovery of markets. They were wrong literally at least six times in a row as the crisis--as I have consistently predicted over the last year--became worse and worse. So enough of the excessive optimism that has been proved wrong at least six times in the last eight months alone.
A reality check is needed to assess risks--and to take appropriate action. And reality tells us that we barely avoided, only a week ago, a total systemic financial meltdown; that the policy actions are now finally more aggressive and systematic, and more appropriate; that it will take a long while for interbank and credit markets to mend; that further important policy actions are needed to avoid the meltdown and an even more severe recession; that central banks, instead of being the lenders of last resort, will be, for now, the lenders of first and only resort; that even if we avoid a meltdown, we will experience a severe U.S., advanced economy and, most likely, global recession, the worst in decades; that we are in the middle of a severe global financial and banking crisis, the worst since the Great Depression; and that the flow of macro, earnings and financial news will significantly surprise (as during the last few weeks) on the downside with significant further risks to financial markets.
I'll stop now.
Nouriel Roubini, a professor at the Stern Business School at New York University and chairman of Roubini Global Economics, is a weekly columnist for Forbes.com.
Thursday, October 30, 2008
Nouriel Roubini: I fear the worst is yet to come
http://business.timesonline.co.uk/tol/business/economics/article5014463.ece
From The Sunday Times
October 26, 2008
Nouriel Roubini: I fear the worst is yet to come
When this man predicted a global financial crisis more than a year ago, people laughed. Not any more...
Dominic Rushe
As stock markets headed off a cliff again last week, closely followed by currencies, and as meltdown threatened entire countries such as Hungary and Iceland, one voice was in demand above all others to steer us through the gloom: that of Dr Doom.
For years Dr Doom toiled in relative obscurity as a New York University economics professor under his alias, Nouriel Roubini. But after making a series of uncannily accurate predictions about the global meltdown, Roubini has become the prophet of his age, jetting around the world dispensing his advice and latest prognostications to politicians and businessmen desperate to know what happens next – and for any answer to the crisis.
While the economic sun was shining, most other economists scoffed at Roubini and his predictions of imminent disaster. They dismissed his warnings that the sub-prime mortgage disaster would trigger a financial meltdown. They could not quite believe his view that the US mortgage giants Fannie Mae and Freddie Mac would collapse, and that the investment banks would be crushed as the world headed for a long recession.
Yet all these predictions and more came true. Few are laughing now.
What does Roubini think is going to happen next? Rather worryingly, in London last Thursday he predicted that hundreds of hedge funds will go bust and stock markets may soon have to shut – perhaps for as long as a week – in order to stem the panic selling now sweeping the world.
What happened? The next day trading was briefly stopped in New York and Moscow.
Dubbed Dr Doom for his gloomy views, this lugubrious disciple of the “dismal science” is now the world’s most in-demand economist. He reckons he is getting about four hours’ sleep a night. Last week he was in Budapest, London, Madrid and New York. Next week he will address Congress in Washington. Do not expect any good news.
Contacted in Madrid on Friday, Roubini said the world economy was “at a breaking point”. He believes the stock markets are now “essentially in free fall” and “we are reaching the point of sheer panic”.
For all his recent predictive success, his critics still urge calm. They charge he is a professional doom-monger who was banging on about recession for years as the economy boomed. Roubini is stung by such charges, dismissing them as “pathetic”.
He takes no pleasure in bad news, he says, but he makes his standpoint clear: “Frankly I was right.” A combative, complex man, he is fond of the word “frankly”, which may be appropriate for someone so used to delivering bad news.
Born in Istanbul 49 years ago, he comes from a family of Iranian Jews. They moved to Tehran, then to Tel Aviv and finally to Italy, where he grew up and attended college, graduating summa cum laude in economics from Bocconi University before taking a PhD in international economics at Harvard.
Fluent in English, Italian, Hebrew, and Persian, Roubini has one of those “international man of mystery” accents: think Henry Kissinger without the bonhomie. Single, he lives in a loft in Manhattan’s trendy Tribeca, an area popularised by Robert De Niro, and collects contemporary art.
Despite his slightly mad-professor look, he is at pains to make clear he is normal. “I’m not a geek,” said Roubini, who sounds rather concerned that people might think he is. “I mean it frankly. I’m not a geek.”
He is, however, ferociously bright. When he left Harvard, he moved quickly, holding various positions at the Treasury department, rising to become an economic adviser to Bill Clinton in the late 1990s. Then his profile seemed to plateau. His doubts about the economic outlook seemed out of tune with the times, especially when a few years ago he began predicting a meltdown in the financial markets through his blog, hosted on RGEmonitor. com, the website of his advisory company.
But it was a meeting of the International Monetary Fund (IMF) in September 2006 that earned him his nickname Dr Doom.
Roubini told an audience of fellow economists that a generational crisis was coming. A once-in-a-lifetime housing bust would lay waste to the US economy as oil prices soared, consumers stopped shopping and the country went into a deep recession.
The collapse of the mortgage market would trigger a global meltdown, as trillions of dollars of mortgage-backed securities unravelled. The shockwaves would destroy banks and other big financial institutions such as Fannie Mae and Freddie Mac, America’s largest home loan lenders.
“I think perhaps we will need a stiff drink after that,” the moderator said. Members of the audience laughed.
Economics is not called the dismal science for nothing. While the public might be impressed by Nostradamus-like predictions, economists want figures and equations. Anirvan Banerji, economist with the New York-based Economic Cycle Research Institute, summed up the feeling of many of those at the IMF meeting when he delivered his response to Roubini’s talk.
Banerji questioned Roubini’s assumptions, said they were not based on mathematical models and dismissed his hunches as those of a Cassandra. At first, indeed, it seemed Roubini was wrong. Meltdown did not happen. Even by the end of 2007, the financial and economic outlook was grim but not disastrous.
Then, in February 2008, Roubini posted an entry on his blog headlined: “The rising risk of a systemic financial meltdown: the twelve steps to financial disaster”.
It detailed how the housing market collapse would lead to huge losses for the financial system, particularly in the vehicles used to securitise loans. It warned that “ a national bank” might go bust, and that, as trouble deepened, investment banks and hedge funds might collapse.
Even Roubini was taken aback at how quickly this scenario unfolded. The following month the US investment bank Bear Stearns went under. Since then, the pace and scale of the disaster has accelerated and, as Roubini predicted, the banking sector has been destroyed, Freddie and Fannie have collapsed, stock markets have gone mad and the economy has entered a frightening recession.
Roubini says he was able to predict the catastrophe so accurately because of his “holistic” approach to the crisis and his ability to work outside traditional economic disciplines. A long-time student of financial crises, he looked at the history and politics of past crises as well as the economic models.
“These crises don’t come out of nowhere,” he said. “Usually they arrive because of a systematic increase in a variety of asset and credit bubbles, macro-economic policies and other vulnerabilities. If you combine them, you may not get the timing right but you get an indication that you are closer to a tipping point.”
Others who claimed the economy would escape a recession had been swept up in “a critical euphoria and mania, an irrational exuberance”, he said. And many financial pundits, he believes, were just talking up their own vested interests. “I might be right or wrong, but I have never traded, bought or sold a single security in my life. I am trying to be as objective as I can.”
What does his objectivity tell him now? No end is yet in sight to the crisis.
“Every time there has been a severe crisis in the last six months, people have said this is the catastrophic event that signals the bottom. They said it after Bear Stearns, after Fannie and Freddie, after AIG [the giant US insurer that had to be rescued], and after [the $700 billion bailout plan]. Each time they have called the bottom, and the bottom has not been reached.”
Across the world, governments have taken more and more aggressive actions to stop the panic. However, Roubini believes investors appear to have lost confidence in governments’ ability to sort out the mess.
The announcement of the US government’s $700 billion bailout, Gordon Brown’s grand bank rescue plan and the coordinated response of governments around the world has done little to calm the situation. “It’s been a slaughter, day after day after day,” said Roubini. “Markets are dysfunctional; they are totally unhinged.” Economic fundamentals no longer apply, he believes.
“Even using the nuclear option of guaranteeing everything, providing unlimited liquidity, nationalising the banks, making clear that nobody of importance is going to be allowed to fail, even that has not helped. We are reaching a breaking point, frankly.”
He believes governments will have to come up with an even bigger international rescue, and that the US is facing “multi-year economic stagnation”.
Given such cataclysmic talk, some experts fear his new-found influence may be a bad thing in such troubled times. One senior Wall Street figure said: “He is clearly very bright and thoughtful when he is not shooting from the hip.”
He said he found some of Roubini’s comments “slapdash and silly”. “Sometimes the rigour of his analysis seems to be missing,” he said.
Banerji still has problems with Roubini’s prescient IMF speech. “He has been very accurate in terms of what would happen,” he said. But Roubini was predicting an “imminent” recession by the start of 2007 and he was wrong. “He hurt his credibility by being so pessimistic long before it was appropriate.”
Banerji said on average the US economy had grown for five years before hitting a bad patch. “Roubini started predicting a recession four years ago and saying it was imminent. He kept changing his justification: first the trade deficit, the current account deficit, then the oil price spike, then the housing downturn and so on. But the recession actually did not arrive,” he said.
“If you are an investor or a businessman and you took him seriously four years ago, what on earth would happen to you? You would be in a foetal position for years. This is why the timing is critical. It’s not enough to know what will happen in some point in the distant future.”
Roubini says the argument about content and timing is irrelevant. “People who have been totally blinded and wrong accusing me of getting the timing wrong, it’s just a joke,” he said. “It’s a bit pathetic, frankly. I was not making generic statements. I have made very specific predictions and I have been right all along.” Maybe so, but he does not sound too happy about it, frankly.
Subscribe to:
Posts (Atom)
Posts
