Photo: arbyreed on flickr
Dr. Doom Nouriel Roubini is once again warning of a perfect global storm in 2013. In his latest Project Syndicate column Roubini warns of dark “financial and economic clouds” from Europe, the U.S., China and the Middle East.
First, he says the eurozone crisis is worsening, the fiscal and sovereign debt crisis and the problems in its banking sector are worsening. In fact he says, eurozone might need a bailout of its banks but also a sovereign bailout. “As a result, disorderly breakup of the eurozone remains possible.”
Then, he warns that the U.S. economy is also struggling with weaker growth and job creation, the risk of a drag from the fiscal cliff and political impasse in Washington over fiscal adjustment irrespective of the outcome of the election.
“…New fights on the debt ceiling, risks of a government shutdown, and rating downgrades could further depress consumer and business confidence, reducing spending and accelerating a flight to safety that would exacerbate the fall in stock markets.”
With talks of a Chinese hard landing building Roubini thinks their growth model is unsustainable and the reforms aren’t coming fast enough.
“In the east, China, its growth model unsustainable, could be underwater by 2013, as its investment bust continues and reforms intended to boost consumption are too little too late.”
Finally, he warns of tensions in the Middle East with Israel and the U.S. on one side and Iran on the other over the issue of nuclear proliferation.
Unlike 2008-2009 policymakers don’t have a lot of room to act. Interest rates are already at zero and there have been repeated rounds of QE, and ability to bailout banks and sovereigns is constrained by politics.