Photo: flickr/World Economic Forum
NYU Professor Nouriel Roubini is in Aix-en-Provence.But the French countryside hasn’t cheered him up any.
In fact, in a new video interview with Bloomberg’s Caroline Connan, Professor Roubini has outdone himself, issuing a forecast so apocalyptic that even devout Roubini-ites will be startled by its pessimism.
(It’s the smoothness, eloquence, and utterly matter-of-fact delivery that makes it so alarming.)
The fun starts at the 5-minute mark. Here are the highlights, which are delivered in perfect bullet-point format by Roubini, one after another:
- “By 2013, the ability of policy makers to kick the can down the road is going to run out of steam”
- “In the Euro-zone the slow-motion train-wreck could become a faster-motion train wreck”
- “The U.S. looks close to stall-speed and a recession, given the latest economic data”
- “The landing of China is becoming harder rather than softer”
- “The other emerging markets are all sharply slowing down in terms of growth–the BRICs, China, Russia, India, Brazil, and also Mexico, Turkey. Partly it’s because there’s a recession in the Eurozone and U.K., partly it’s because they’re not doing their reforms.”
- “And finally there is the time bomb of a potential war between Israel and the U.S. and Iran. Negotiations have failed. The sanctions will fail. Obama doesn’t want a war before the election, but after the election, regardless of whether it is Obama elected or Romney, chances are the U.S. is going to decide to go and attack Iran and then you’ll have a doubling in global oil prices overnight.”
- “So, it’s the perfect storm! You could have a collapse of the Eurozone, a U.S. double-dip, hard-landing of China, hard-landing of emerging markets, and a war in the Middle East. Next year could be a global perfect storm.”
At this point, Bloomberg’s Connan asks a question:
“So you’re predicting a scenario that is much worse than 2008?
“Well, it’s much worse, because like 2008 you have an economic and financial crisis, but unlike 2008, you’re running out of policy bullets. In 2008, you could cut rates from 5%-6% down to zero, do QE1, QE2, QE3, you could do fiscal stimulus up to 10% of GDP, you could backstop a guarantee bailout of banks and everybody else. Today, more QEs are becoming less and less effective because the problems are of insolvency not illiquidity. Fiscal deficits are already so large that everybody has to cut them, not increase them. And you cannot bail out the banks because 1) there is political opposition to it, 2) governments are near insolvent and they cannot bail out themselves, let alone bail out the banking system.
“So the problem is that we are running out of policy bullets. We’re running out of policy rabbits to pull out of the policy hats compared to 2008.
“So if a freefall of markets and economy does occur, you don’t have any more of a safety net of enough policy bullets to try to absorb the shocks, because we’ve been spending the last 4 years using 95% of those bullets. So we are running out of bullets.”
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