It's Pretty Clear The Housing Market Has Already Double Dipped

"It's pretty clear the housing market has already double dipped. And the rate of decline is stronger than in previous months. If you look at the data, Case Shiller has been falling every month since the tax credit expired in May. Everyone who wanted to buy a home did so by April." - in CNBC

Related stocks: Lennar Corporation (NYSE:LEN) , D.R. Horton, Inc. (NYSE:DHI) , PulteGroup, Inc. (NYSE:PHM) , Toll Brothers, Inc. (NYSE:TOL) , Bank of America Corporation (NYSE:BAC) , Citigroup Inc. (NYSE:C) , Wells Fargo & Company (NYSE:WFC) , Morgan Stanley (NYSE:MS), Fifth Third Bancorp (NASDAQ:FITB), SunTrust Banks, Inc. (NYSE:STI), iShares Dow Jones US Home Const. (ETF) (NYSE:ITB)

Spain Is Too Big To Fail And Too Big To Be Bailed Out.

“Spain is too big to fail but also too big to be bailed out. The existing resources for bailouts are too small to backstop the Spanish banks and the sovereign if there is going to be a run on them.”

in Bloomberg TV

Related: Banco Santander, S.A. (ADR) (NYSE:STD), Banco Bilbao Vizcaya Argentaria SA (ADR) (NYSE:BBVA), iShares MSCI Spain Index (ETF) (NYSE:EWP)

United Kingdom`s Risks To Growth.

"UK fiscal austerity is more front loaded than back loaded with short term risks to growth if rising inflation doesnt allow the BoE to do QE2"

in Twitter

Related: iShares MSCI United Kingdom Index (ETF) (Public, NYSE:EWU)

We May Need QE3, But Congress May Not Allow It

“We may need QE3, but then the politics from Congress and the internal dynamic of the FOMC may not allow it, even if now growth is still below trend and inflation is still low and falling.”

in Bloomberg

Economic Growth In The US And Most Developed Economies Is Anaemic And Below Expectations.

"Economic growth in the US and most developed economies is anaemic and below expectations. Measures of inflation, both core and headline, are below the implicit and explicit targets of the Federal Reserve. The scenario is low growth, low inflation and an unemployment rate close to 10 per cent. If one were to run the numbers, you get that the Fed Funds rate (FFR) should be around minus 5 percent, but nominal policy rates have a zero lower bound. Quantitative easing (QE) by the US and other governments has been increasing liquidity to effectively push the real policy rate below zero. Some $600bn of additional liquidity in QE2 is the equivalent of a reduction of about 50-60 basis points in the FFR. When Ben Bernanke says this is just a variant of traditional monetary policy, I think that is correct, even if unconventional.

I think recent opposition to QE2, especially those that have said it is a disaster, is totally wrong. Given the high risk of a double dip recession, ask yourself where would the economy and risky asset prices be today if this had not been done. Asset price reaction had already priced in QE2 from Bernanke’s speech in Jackson Hole well ahead of the actual implementation. The stock market is about 10 per cent higher." - in RGE

Related: SPDR S&P 500 ETF (NYSE:SPY) , iShares Russell 2000 Index (ETF) (NYSE:IWM), PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQQ)

European Sovereign Debt Crisis

“The risk of something disorderly happening is still significant. At the moment, the policy is still lend, pray and hope this is a liquidity problem and not a solvency problem.”

in The Telegraph

The Risks For A Double Dip Recession Have Receded.

"The good news about advanced economies is that the tail-risk of a double-dip recession has receded."

Outlook for 2011, Roubini Global Economics in Greenwich Village, New York

Related: SPDR S&P 500 ETF (NYSE:SPY) , iShares Russell 2000 Index (ETF) (NYSE:IWM), PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQQ)

The US Dollar As A Reserve Currency. For How Long?

"Traditionally, empires that hold the global reserve currency are also net foreign creditors and net lenders. The British Empire declined—and the pound lost its status as the main global reserve currency—when Britain became a net debtor and a net borrower in World War II. Today, the United States is in a similar position. It is running huge budget and trade deficits, and is relying on the kindness of restless foreign creditors who are starting to feel uneasy about accumulating even more dollar assets."

in The Times

Related: CurrencyShares British Pound Ster. Trst (NYSE:FXB), PowerShares DB US Dollar Index Bullish (NYSE:UUP), PowerShares DB US Dollar Index Bearish (NYSE:UDN)

Euro Crisis: ECB May Be Forced To Bail Out PIIGS Through Repo And Bond Purchases.

"If no fiscal union, no Euro-Bonds & not a larger EFSF the European Central Bank will be forced to bailout PIIGS banks/sovereigns through its repo & bond purchases."

in Twitter

Q&A With Foreign Policy Magazine

Reading list: This Time Is Different, by Carmen Reinhart and Kenneth Rogoff; Fault Lines, by Raghuram Rajan; Regulating Wall Street, by Viral Acharya et al.

Best idea: The continued rise of emerging-market economies.
Worst idea: The forecast of a V-shaped recovery for the U.S. economy.
China or India? India, in the long term.
Kindle or iPad? iPad.

Foreign Policy Magazine On Roubini

"Being a global economic Cassandra isn’t a cheerful job, but someone’s got to do it — and Nouriel Roubini acknowledges that he fits the role perfectly. He has even embraced the moniker “Dr. Doom,” a name derisively pinned on him before the 2008 crash that showed his pessimism was warranted. And so while everyone’s still trying to figure out how to overcome the last financial crisis, Roubini has his sights set firmly on the next one — which, Dr. Doom assures us in his book, Crisis Economics, won’t latest be too far off.

Roubini argues that the United States is at serious risk of heading back into a recession, and unlike other talking heads, he puts a number on his prediction, saying there’s a 40 percent chance of the United States hitting the dreaded “double dip.” Why? He thinks the root causes of the current malaise have only been covered over and that unhealthy levels of debt are once again piling up around the world — though this time on government accounting ledgers. It’s only a matter of time, he says, until we start seeing national bankruptcies — perhaps even a cascade of them across Europe that sparks the dissolution of the euro. If Roubini has one message, it’s that crises aren’t unforeseeable “black swan” events, but “white swans” — the culmination of long trends that are perfectly intelligible to anyone who takes the time to examine the data. We may not like Dr. Doom’s advice, but we can’t say he didn’t warn us."

in Foreign Policy

Are Bond Vigilantes Starting To Wake Up?

"Obama-GOP tax deal costs $900 billion over two years. US kicking the can further down the road. Are bond vigilantes starting to wake up?"

in Twitter

Related: ProShares UltraShort 20+ Year Trea (ETF) (NYSE:TBT), iShares Barclays 20+ Yr Treas.Bond (ETF) (NYSE:TLT), iShares Lehman 7-10 Yr Treas. Bond (ETF) (NYSE:IEF)

Roubini Fears the Bond Vigilantes May Come to U.S. (CNBC)

"Economist Nouriel Roubini on Wednesday voiced concern over a compromise on extending tax cuts struck by US President Barack Obama and Republican leaders, saying the agreement could expose the US to bond vigilantes who will drive up bond yields."

in CNBC

Related ETFs: ProShares UltraShort 20+ Year Trea (ETF) (NYSE:TBT) , iShares Barclays 20+ Yr Treas.Bond (ETF) (NYSE:TLT), iShares Lehman 7-10 Yr Treas. Bond (ETF) (NYSE:IEF)

China`s Inflation Outlook.

China’s food prices look to be peaking, with vegetable prices falling in the second half of November after government efforts to boost supplies and impose price caps took effect. Still, the CPI last month increased at its fastest pace in more than two years. The two required reserve ratio (RRR) hikes in November resulted in some acute liquidity shortages toward the end of the month, but these appear to have dissipated in the first week of December. We expect the central bank to hike interest rates by 25 basis points (bps) in the coming weeks.

in RGE.com

Related: iShares FTSE/Xinhua China 25 Index (ETF) (NYSE:FXI), PowerShares Gld Drg Haltr USX China(ETF) (NYSE:PGJ), Morgan Stanley China A Share Fund, Inc. (NYSE:CAF)

The US Real Estate Market Is Double Dipping

"The United States real estate market, for sure, is double dipping. The apparent increase in prices has been fully reversed, demand is falling, and supply is going to increase.”

in New York Times

Related: iShares Dow Jones US Home Const. (ETF) (NYSE:ITB), Lennar Corporation (NYSE:LEN), D.R. Horton, Inc. (NYSE:DHI), Bank of America Corporation (Public, NYSE:BAC), Citigroup Inc. (NYSE:C) , JPMorgan Chase & Co. (Public, NYSE:JPM), Huntington Bancshares Incorporated (NASDAQ:HBAN)

There's Not Going To Be Anybody Coming From Mars Or The Moon To Bail Out The IMF Or The Eurozone

"We started with private debt, we socialized it and it became public debt. Now we have sovereigns in trouble being bailed out by essentially super sovereigns, IMF, euro zone, EU. But there's not going to be anybody coming from Mars or the moon to bail out the IMF or the eurozone."

in Reuters Insider

Related: SPDR S&P 500 ETF (NYSE:SPY), iShares Russell 2000 Index (ETF) (NYSE:IWM), iShares MSCI United Kingdom Index (ETF) (NYSE:EWU), iShares MSCI Spain Index (ETF) (NYSE:EWP)

A Spanish Inquisition.

With Ireland's financial woes exposed, Spain's similarities warrant inspection.
Contagion has taken hold of Spain, with respect to both the sovereign and the banking system, in the wake of Ireland's financial troubles and bailout application. In contrast with Greece, where the key vulnerabilities are in the public sector, both Spain and Ireland have run up large private sector imbalances following real estate booms and busts. In "Comparing Spain With Ireland and Other PIIGS: Better in Some Ways, More at Risk in Others," available exclusively to clients, we shed light on Spain's balance sheet vulnerabilities to assess liquidity and solvency risks in comparison with Ireland and the other PIIGS (Italy, Greece and Portugal).

Spain shares some of Ireland's key vulnerabilities, including a housing bubble more pronounced than that in the U.S. and large nonperforming loan overhang in the banking sector. Though Spain's housing bubble is less severe than Ireland's, and though the Spanish banks' commendable loan-loss provisioning system is providing a buffer, a comparison of price-to-rent ratios shows that the bulk of the housing price correction and loss recognition has not yet come. Thus, the pressure on the banking system is bound to increase going forward.

Plus, unlike Ireland, Spain's economy is subject to structural rigidities that prevent a fast return to growth and a quick competitiveness adjustment through internal devaluation. While this year's fiscal performance is largely on track, the 2011 fiscal target of 6% will be more challenging amid fiscal austerity. In some dimensions Spain's macro and financial fundamentals (for example, national savings and public debt levels) are better than those of other periphery countries. But in many dimensions, fundamentals are worse and financial vulnerabilities more severe (for example, unemployment and financing needs).

As the flow of excess savings from abroad has receded after the investment bust, Spain's private losses are being socialized, with dire consequences for the public sector balance sheet--although not to the same extent as in Ireland. Ireland's outsized banking sector in comparison to GDP and its decision to stand behind banks that are too big for it alone to save have accelerated the unsustainable debt dynamics. But one must ask: Is Spain in a fundamentally different situation? Investors seemed willing to give Spain the benefit of the doubt, but market dynamics since Ireland's application for external support show that a reassessment is taking place.

If the current liquidity pressures don't abate and Spain, alongside Ireland and possibly Portugal, is forced to turn to the E.U. funding mechanism, the 500 billion euros of E.U. resources (in addition to the not-yet-committed 250 billion euros in potential IMF funds) would be strained. With Spain too big to fail but also effectively too big to save, a bailout request would open the door to speculation against the cohesion of the eurozone. Indeed, German Bundesbank President Axel Weber's comment that the 500 billion euro bailout fund could be increased if necessary to prevent a breakup of the currency union shows that this concern is shared among even the most vocal bailout skeptics.

The alternative to a bailout is a bail-in of private investors. The inclusion of collective action clauses on new debt issues starting in mid-2013, as part of the new European Stabilization Mechanism, is meant to facilitate this process in those cases where insolvency has been established. While useful, such legal technology is not necessary to achieve an orderly restructuring of sovereign debt--previous instances illustrate that market-based restructurings via exchange offers are sufficient.

Elisa Parisi-Capone is a senior analyst for finance, banking and Western Europe with Roubini Global Economics, Christian Menegatti is the head of global research and Nouriel Roubini is the chairman.

Related: iShares MSCI Spain Index (ETF) (NYSE:EWP), Telefonica S.A. (ADR) (Public, NYSE:TEF) , Banco Santander, S.A. (ADR) (NYSE:STD) , Banco Bilbao Vizcaya Argentaria SA (ADR) (NYSE:BBVA), Repsol YPF, S.A. (ADR) (NYSE:REP) , Banco Popular Espanol SA (MCE:POP), Inditex SA (MCE:ITX) , Gas Natural SDG SA (MCE:GAS)

Spain Is Too Big To Fail, Too Big To Be Saved.

"Spain is too big to fail but also too big to be saved or too big to be bailed out. Official funds aren't currently enough to bailout Spain."

in Twitter

Related: iShares MSCI Spain Index (ETF) (NYSE:EWP), Telefonica S.A. (ADR) (Public, NYSE:TEF) , Banco Santander, S.A. (ADR) (NYSE:STD) , Banco Bilbao Vizcaya Argentaria SA (ADR) (NYSE:BBVA), Repsol YPF, S.A. (ADR) (NYSE:REP) , Banco Popular Espanol SA (MCE:POP), Inditex SA (MCE:ITX) , Gas Natural SDG SA (MCE:GAS)

Advanced Economies Will Have To Spend Less, Consume Less, Import Less

“Advanced economies will have to spend less, consume less, import less and save more for years to put the economy back on track. The monetary easing came after inflation readings stood below the central bank’s target.”

in Taipei Times

Related: SPDR S&P 500 ETF (NYSE:SPY), iShares Russell 2000 Index (ETF) (NYSE:IWM), iShares MSCI United Kingdom Index (ETF) (NYSE:EWU), iShares MSCI Spain Index (ETF) (NYSE:EWP)

China`s Inflation And Asset Bubbles.

"Today China is overheating, inflation is rising, there is excessive monetary growth, excessive credit growth, beginning of asset bubbles. One of the ways which China can control this risk is to allow a faster rate of appreciation of the currency."

in Bloomberg.com

Related: IShares FTSE/Xinhua China 25 Index (ETF) (NYSE:FXI) , Morgan Stanley China A Share Fund, Inc. (NYSE:CAF) , PowerShares Gld Drg Haltr USX China(ETF) (NYSE:PGJ) , Baidu.com, Inc. (ADR) (NASDAQ:BIDU) , Sohu.com Inc. (NASDAQ:SOHU), Aluminum Corp. of China Limited (ADR) (NYSE:ACH)

Contagion Is Spreading From Ireland To Spain.

"Contagion is spreading from Ireland to Spain, which shares some key vulnerabilities in the wake of its real estate boom/bust and large non-performing loan overhang in the banking sector. A house price comparison shows that the housing bubble in Spain was more pronounced than in the United States but less pronounced than in Ireland."

in roubini.com

There Is Financial Contagion In Europe.

“There’s now financial contagion in Portugal, Spain and to a smaller degree even in countries like Italy, Belgium and others in the euro zone.”

Nouriel Roubini, in a speech to a conference in Taipei today

Official Resources Wouldn't Be Enough To Cover The Financing Needs Of Spain

"After bailout of Greece, Ireland and Portugal, official resources wouldn't be enough to cover the financing needs of the Spanish sovereign and its banks."

in Twitter

Fiscal Austerity Will Lead To Debt Restructuring Among Nations

"A period of low growth and low inflation in the U.S. and Europe is being exacerbated by rashly implemented fiscal austerity that will stifle growth and eventually lead to debt restructuring among nations and international institutions, economist Nouriel Roubini said Monday.

Debt restructuring is most probably "inevitable," said Mr. Roubini, a professor of economics and international business at New York University and chairman of Roubini Global Economics.

Governments are kicking the burden of fiscal responsibility down the line to international institutions, while failing to address the economic stagnation that will come from severe budget cuts, he said at an economic conference in the Czech capital."

in WSJ

Related ETFs: iShares MSCI Spain Index (ETF) (NYSE:EWP), iShares MSCI Italy Index (ETF) (NYSE:EWI)

Most Fiscal Consolidation Should Be Back-Loaded And Not Front-Loaded

"Ideally, in a world in which you can do it, every country should cut spending and raise taxes, but most fiscal consolidation should be back-loaded and not front-loaded as front-loading cuts economic activity."

in a Prague conference

Greece And Ireland Are Solvency Issues, Not Liquidity Issues.

"Greece & Ireland are solvency not liquidity issues. So official financing & bailing out even bank creditors only kicks the can down the road."

Related ETF and stocks: Bank of Ireland (ADR) (NYSE:IRE), Allied Irish Banks, plc. (ADR) (NYSE:AIB), National Bank of Greece (ADR) (NYSE:NBG)

Spain Is Too Big To Fail, Too Big To Be Bailed Out.

"You can try to ring fence Spain. You can provide financing to Ireland, Portugal and Greece for three years and try to leave them out of the market and maybe restructure their debt down the line. But if Spain falls off the cliff, there is not enough official money in this envelope of European resources to bail out Spain.

Spain is too big to fail, on one side, and too big to be bailed out. In Spain, there’s a trillion Euro in public debt. On top of that public debt, you have almost a trillion of the foreign liabilities of the private sector — houses, financial institutions, corporates — Spain was running a current account deficit to finance the excessive spending of the private sector. So it’s not just public debt but private debt that has to be rolled over."

in CNBC

The US Tax Burden Is The Lowest Of Any Advanced Economy.

"The US tax burden is the lowest of any advanced economy. Down now to 15% of GDP from the already pathetically low 20% of GDP."

in Twitter

Bond Vigilantes And The US Government Bonds.

"The bond vigilantes have not woken up for the US treasury market—yet."

Nouriel Roubini - November, 2010

Related ETFs: ProShares UltraShort 20+ Year Trea (ETF) (NYSE:TBT) , iShares Barclays 20+ Yr Treas.Bond (ETF) (NYSE:TLT)

The Real Threats Are Anemic Growth And Deflation, Not Inflation.

"Lets fight real threats - anemic growth, double dip risk, deflation risk - not phantom ghosts of inexistent goods inflation."

Nouriel Roubini, in Twitter

The Irish Are On A Path To Near Or Complete Insolvency.

"Put simply the Irish – like the Greeks – are on a path to near or complete insolvency. The reason the EU has so far decided to provide emergency financing to Greece and Ireland is not because it lacks a legal mechanism for orderly restructuring; it is rather because of concerns about systemic contagion."

in Financial Times, today

African Opportunities?

"Africa is risky because there is less liquidity and the governance is not ideal. But in comparison to 10 years ago when there was civil strife and unstable governments, many things have improved."

Nouriel Roubini, in Reuters

"Some of the better economies in Africa: South Africa, Botswana, Namibia, Angola, Mozambique, Nigeria, Ghana, Kenya, Uganda, Tanzania, Rwanda"

in Twitter

Overcapacity In Steel Production Is A Serious Problem.

"The overcapacity in steel production in the world is a serious problem that could lead to trade wars among countries and regions, Nouriel Roubini, the famed economist from New York University's Stern School of Business recently said, according to media reports.

This is a serious problem we have seen in a number of sectors, including steel, where there is overcapacity installed in China and other countries, says Roubini. He also stated that it is leading to a situation where either you don't produce, making factories lose money, or, if you produce at capacity, the increased output falls on weak demand and implies a collapsing price."

in www.indiainfoline.com

Related: United States Steel Corporation (NYSE:X), AK Steel Holding Corporation (NYSE:AKS), ArcelorMittal (ADR) (NYSE:MT)

Investors Should Stop Chasing “Crowded” Trades In Emerging Markets

Economist Nouriel Roubini said in an interview out today that investors should stop chasing “crowded” trades in emerging markets. He believes that African markets such as Ghana, Kenya, Nigeria and Tanzania are better bets. The distinction is that such African countries are most often categorized as so-called frontier markets, even smaller and less-developed than emerging markets.

in Barron`s

Portugal And Ireland Will Soon Need The EFSF Or IMF Support.

"Portugal and Ireland will soon need the EFSF or IMF support as they are on the verge of losing market access as bond vigilantes are up in arms."

Nouriel Roubini, November 9th

If Defaults Keep Rising US Banks Will Be Insolvent Again.

"If 11.5 million more households default on their mortgages most US banks would be insolvent again."

Nouriel Roubini, Twitter, November 9

Related stocks: Bank of America Corporation (BAC), Citigroup Inc. (C), JPMorgan Chase & Co. (JPM), Wells Fargo & Company (WFC) , Morgan Stanley (MS), SunTrust Banks, Inc. (STI), Financial Select Sector SPDR (ETF) (XLF), Direxion Daily Finan. Bear 3X Shs(ETF) (FAZ), Direxion Daily Finan. Bull 3X Shs(ETF) (FAS), Fifth Third Bancorp (FITB), Huntington Bancshares Incorporated (HBAN)

Going Back To A Gold Standard Is Undesirable.

"Going back to a Gold Standard regime or even global fix exchange rates - as suggested by Zoellick - is both undesirable and a pipe dream."

via Twitter, November 8th

Related: SPDR Gold Trust (ETF) (NYSE:GLD)

There Will Be More QE Efforts From The Federal Reserve.

Nouriel Roubini weighs in on the Fed's decision to institute a second round of quantitative easing and explains why he thinks we're likely to see further stimulus ahead. Plus, David Wessel and David Reilly on why criticism of QE2 is escalating.

in WSJ

Related ETFs: United States Oil Fund LP (ETF) (NYSE:USO), iPath S&P GSCI Crude Oil Total Return (NYSE:OIL) , Powershares DB Base Metals Fund (ETF) (NYSE:DBB) , PowerShares DB Agriculture Fund (NYSE:DBA), ProShares UltraShort 20+ Year Trea (ETF) (NYSE:TBT), iShares Barclays 20+ Yr Treas.Bond (ETF) (NYSE:TLT) , PowerShares DB US Dollar Index Bullish (NYSE:UUP)

Employment Report Analysis

Household survey: employment fell 330K last month & labor force participation rate at 25yr low. How does that square with 150K jobs gain?3 minutes ago via Twitter for BlackBerry®

QE2 Will Fail To Revive The Real Economy

"QE2 will be followed by QE3 and QE4 as QE2 will fail to revive the real economy and to prevent deflationary pressures..."via Twitter for BlackBerry®

If House Prices Keep Falling, We Are Going To Have Another Disaster.

“If house prices are going to fall another 5% to 10%, another eight million households are going to be in negative equity. We are going to have another nasty crisis. That’s going to happen unless we do something about it. Forget about subprime, look at prime.”

in a Cape Town Conference

Related ETFs: SPDR S&P 500 ETF (NYSE:SPY), SPDR Dow Jones Industrial Average ETF (NYSE:DIA), PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQQ), iShares Russell 2000 Index (ETF) (NYSE:IWM)

Related stocks: Bank of America Corporation (BAC), Citigroup Inc. (C), JPMorgan Chase & Co. (JPM), Wells Fargo & Company (WFC) , Morgan Stanley (MS), SunTrust Banks, Inc. (STI), Financial Select Sector SPDR (ETF) (XLF), Direxion Daily Finan. Bear 3X Shs(ETF) (FAZ), Direxion Daily Finan. Bull 3X Shs(ETF) (FAS), Fifth Third Bancorp (FITB), Huntington Bancshares Incorporated (HBAN)

Emerging Markets: Prices May Be Running Ahead Of Economic Fundamentals.

“Prices may be running ahead of economic fundamentals. Still, the emerging market party can go on for a while."

Nouriel Roubini, in a Cape Town conference

Related ETF: iShares MSCI Emerging Markets Indx (ETF) (NYSE:EEM)

US Fiscal Train Wreck Ahead

Telegraph article: Roubini sees US 'fiscal train wreck' ahead - The US economy is a "fiscal train wreck" waiting to happen, US economist Nouriel Roubini warned on Friday.

Argentina: The Economic Outlook Is Cloudy Because Of External And Domestic Factors

“While overall economic growth is still robust right now, the economic outlook is cloudy because of external factors and domestic factors. The growth of the economy that is coming from the net export part of the economy is going to weaken over time because global economic growth is slowing down and exports and imports globally are going to slow down.”

With a domestic economy that is driven by mostly domestic demand right now, artificially boosted by easy money, easy credit and easy fiscal policy, and an external sector that so far is doing well, but with the fixed exchange rate and high inflation, the real appreciation is going to lead to a significant weakening of that account.”

Nouriel Roubini, in a Buenos Aires speech, October 27

There Is A Shift Of Economic, Trade And Financial Power To Emerging Economies

"There is a shift of economic, trade and financial power from advanced economies to emerging markets. There's a massive shift in the portfolio preferences of investors to emerging markets and away from advanced markets."

in WSJ

Related ETFs: iShares MSCI Emerging Markets Indx (ETF) (EEM) , iShares MSCI Brazil Index (ETF) (EWZ) , Market Vector Russia ETF Trust (RSX) ,iShares FTSE/Xinhua China 25 Index (ETF) (FXI) , WisdomTree India Earnings Fund (ETF) (Public, NYSE:EPI), iShares MSCI Thailand Index Fund (THD), Market Vectors Indonesia Index (ETF) (IDX)

China And US: A Recipe For Trade Wars.

"Having 10% unemployment in U.S. and 10% growth in China is a recipe for trade wars in a situation in which China doesn't allow its currency to appreciate."

Nouriel Roubini, in a speech to Latin American steel industry executives

Related ETFs: ProShares UltraShort S&P500 (ETF) (NYSE:SDS) , iShares FTSE/Xinhua China 25 Index (ETF) (NYSE:FXI)

Greece Is Going To Default Or Do A Restructuring Under Pressure.

“If you don’t want to call it default or bankruptcy, call it a restructuring under pressure, but it’s going to happen.”

Nouriel Roubini, in www.ekathimerini.com

Growth Is Slowing Down.

“Some factors that contributed the growth performances of developed economies in the first half 2010 will not continue to exist in the second half, slowing the growth”

Nouriel Roubini, Istambul, October 20th

The ECB Would Rather Kill Any Chance Of The PIIGS Recovery.

“The stubborn ECB would rather kill any chance of the PIIGS recovery rather than consider further QE, which it finds unacceptable, citing the threat of a rise in inflation. Deflation, not inflation, is the risk which plagues the PIIGS."

in CNBC.com

Related ETFs: iShares MSCI Spain Index (ETF) (NYSE:EWP), National Bank of Greece (ADR) (NYSE:NBG), Bank of Ireland (ADR) (NYSE:IRE), iShares MSCI Italy Index (ETF) (NYSE:EWI)

The Risk Of Global Currency And Trade Wars Is Rising

“The risk of global currency and trade wars is rising, with most economies now engaged in competitive devaluations”

in ictsd.org

Related ETFs: PowerShares DB US Dollar Index Bearish (NYSE:UDN), PowerShares DB US Dollar Index Bullish (NYSE:UUP)

Ukraine's Economy Has Started To Recover

"Ukraine's economy has started to recover, although the realization of reforms in the financial and taxation spheres should be accelerated to strengthen the process, according to Nouriel Roubini, professor of economics at New York University's Stern School of Business.

The economy in Ukraine has started recovering, but crosswinds are still blowing, in particular, the slow recovery of the global economy, as emerging markets are strongly impacted by the global markets, he said. The only way to support Ukraine's economic growth is to accelerate reforms, and in general conduct a proper economic policy to provide resistance to global stresses, he said in Kiev on Tuesday at an investment forum organized by the Investment Capital Ukraine (ICU) Group.

He said that Ukraine should cut its budget deficit and clean up its financial system. The expert also said that Ukraine could gain much from direction foreign investment, although the rights of capital owners should be fully protected."

in www.ukrainianjournal.com

The Risk Of A Trade War Is Severe In Relations Between The US And China

“We are in a world where everybody wants to grow through exports. The risk of trade war is severe in relations between the U.S. and China.”

in Bloomberg.com

With 1% Growth You Don`t Create Private Jobs, The Budget Deficit Widens, House Prices Go Down Instead Of Stabilizing

“If growth is only 1 percent, it is going to feel like recession, though technically it will not be a recession. You don’t create private jobs, the budget deficit widens, house prices go down instead of stabilizing.”

in Bloomberg.com

Related ETFs: SPDR S&P 500 ETF (NYSE:SPY), iShares Russell 2000 Index (ETF) (NYSE:IWM), ProShares UltraShort S&P500 (ETF) (NYSE:SDS), SPDR Dow Jones Industrial Average ETF (NYSE:DIA)

There Is Still A Probability Of A Double Dip Recession Or Near Depression, As In Japan In The 90`s

“My base scenario is that we will have a slow, U-shaped recovery in the advanced economies, but still there is a probability of a double-dip recession, or near depression, as in Japan in the 1990s. The recovery in advanced economies is still very tentative.”

in Bloomberg

Roubini Says German Austerity Will Be Fatal for Eurozone

New York University Professor Nouriel Roubini said Germany’s austerity measures, introduced to fight the aftermath of the financial crisis, are “fatal” for Europe’s largest economy, Capital magazine reported, citing an interview.

Chancellor Angela Merkel should take advantage of Germany’s ability to borrow money cheaply and “should only start to consolidate when the rest of Europe is in better shape,” Roubini is cited as saying.

in Bloomberg.com

Financial Markets Volatility Will Be High. Downside Risk Is Higher Then Upside Risk.

"On the fiscal side, Roubini thinks stimulus on a large scale would still work. However, the chances of that happening are slim. The U.S. budget deficit is already at 10 percent of GDP and debt is close to 95 percent of GDP. Plus, bond vigilantes are waking up and the U.S., like most advanced economies, are in "austerity mode" politically, said Roubini.


In light of this problem, Roubini expects financial market volatility to remain high; the downside risk is greater than the upside risk for equities."

in www.ibtimes.com

Related ETFs: SPDR S&P 500 ETF (NYSE:SPY) , ProShares UltraShort S&P500 (ETF) (NYSE:SDS), iShares Russell 2000 Index (ETF) (NYSE:IWM), ProShares UltraShort QQQ (ETF) (NYSE:QID), PowerShares QQQ Trust, Series 1 (ETF) (NASDAQ:QQQQ), ProShares UltraShort 20+ Year Trea (ETF) (NYSE:TBT), iShares Barclays 20+ Yr Treas.Bond (ETF) (NYSE:TLT)

The Growth Is So Low That It Feels Like A Recession

"The growth is so low that it feels like a recession, even if it is not technically a recession"

Nouriel Roubini, in a Seoul Conference

Related ETFs: ProShares UltraShort S&P500 (ETF) (NYSE:SDS) , ProShares UltraShort QQQ (ETF) (NYSE:QID)

What Obama Can Do To Prevent A Double Dip Recession

Nouriel Roubini is out with a new piece for Foreign Policy on what Obama can do to prevent a double dip recession. It's two pages long, but it can be boiled down really simply:

Eliminate the payroll tax temporarily and reinstall the Bush tax cuts on the rich.

The basic idea? This would spur spending because the working class spends more of their money than the rich do. And what's more it would be deficit neutral (perhaps), and thus wouldn't make people more nervous about breaking the bank.

in www.businessinsider.com

The U.S. Economy Increasingly Looks Vulnerable To Falling Back Into Recession

Roughly three years since the onset of the financial crisis, the U.S. economy increasingly looks vulnerable to falling back into recession. The United States is flirting with stall speed, an anemic rate of growth that, if it persists, can lead to collapses in spending, consumer confidence, credit, and other crucial engines of growth.

Call it a "double dip" or the Great Recession, Round II: Whatever the term, we're talking about a negative feedback loop that would be devilishly hard to break.

Nouriel Roubini and Michael Moran, in Foreign Policy

Related ETFs: Financial Select Sector SPDR (ETF) (NYSE:XLF), Retail HOLDRs (ETF) (NYSE:RTH), Direxion Daily Finan. Bear 3X Shs(ETF) (NYSE:FAZ), Consumer Discretionary SPDR (ETF) (NYSE:XLY)

US Zeitgeist 2010

The Euro At 1.4000 Is A Painful Level For The Euro Region

"Nouriel Roubini, the professor credited with predicting the 2008 economic crisis, expects the European Central Bank to be forced to ease monetary policy further and sees risks of a double dip recession.

Roubini, speaking at the Peterson Institute today in Washington, said that the euro at 1.4000 is a “painful” level for the euro region."

in Bloomberg.com

Home Prices Will Fall Another 10%

Dr. Doom, New York University professor Nouriel Roubini, told an American Enterprise Institute forum Wednesday that even though the recession technically ended in June 2009, he believes home prices will fall another 10% and that there is now a 40% chance that the economy will fall back into recession over the next 12 months.

in www.huffingtonpost.com

Related Stocks and ETF: Lennar Corporation (NYSE:LEN), KB Home (NYSE:KBH), D.R. Horton, Inc. (NYSE:DHI), Toll Brothers, Inc. (NYSE:TOL), iShares Dow Jones US Home Const. (ETF) (NYSE:ITB)

There Is A 40% Probability Of A Double-Dip Recession

There is a 40% probability of a double-dip recession, but you don't need one for the global economy to feel like it is in a deep, continuing recession, said Nouriel Roubini, the famous pessimist and economics professor at New York University on Wednesday. He said external shocks, such as another Greek credit crisis, perhaps with problems in Spain, Portugal or Ireland, could trigger the shock needed for a double-dip recession. "You don't need another Lehman story, you don't need a major loss," said Roubini at an American Enterprise Institute event. "You can have death by a thousand cuts."

in CBS MarketWatch

Capital Will Keep Flowing Into Emerging Markets

The global financial crisis sped up the pace of capital inflows into emerging markets, economist Nouriel Roubini said Tuesday.

Speaking at a conference here, he said that if and when advanced economies recover from the global financial crisis, the emerging markets will still see a greater share of capital inflows over the long-term, as participants diversify their investment portfolios, lured by the robust growth forecast for emerging markets.

Many emerging markets, including countries in Latin America such as Chile, have seen their currencies bulge versus the dollar, in part on strong capital inflows.

in WSJ

Related: iShares MSCI Emerging Markets Indx (ETF) (NYSE:EEM)

China `s Questionable Infrastructure Investments

"You know, I go to China six or seven times a year, and you have brand-new airports three-quarters empty. Highways to nowhere all over the country."

in WSJ

Related ETFs: iShares FTSE/Xinhua China 25 Index (ETF) (NYSE:FXI), Morgan Stanley China A Share Fund, Inc. (NYSE:CAF), PowerShares Gld Drg Haltr USX China(ETF) (NYSE:PGJ)

The Too Big To Fail Problem

“The ‘too big to fail’ problem has become an even too bigger to fail problem. That is what happens when you do mergers that don’t make any sense.”

Nouriel Roubini, Bloomberg Dealmakers Summit in New York

Related stocks: Citigroup Inc. (NYSE:C), Bank of America Corporation (NYSE:BAC), JPMorgan Chase & Co. (NYSE:JPM), Wells Fargo & Company (NYSE:WFC) , Goldman Sachs Group, Inc. (NYSE:GS) , Morgan Stanley (NYSE:MS)

China Will Feel The Effects Of A Slowdown In Europe, US

China, the world’s fastest-growing major economy, may face greater headwinds should there be weak growth in the United States and Europe.

in The Star, Malaysia

Related ETFs: iShares FTSE/Xinhua China 25 Index (ETF) (NYSE:FXI), Morgan Stanley China A Share Fund, Inc. (NYSE:CAF), PowerShares Gld Drg Haltr USX China(ETF) (NYSE:PGJ)

If The Economic Data Surprise On The Down Side, We Are Going To Have A Correction Of The Stock Markets

"We are already in a situation which is going to feel like a recession, even if we are not in one. And if the economic data surprise on the down side, we are going to have a correction of the stock markets, widening of credit spreads, increased volatility, increase risk aversion, then it leads to a shock for the real economy."

in CNBC, September 27

Related ETFs: ProShares UltraShort S&P500 (ETF) (NYSE:SDS), ProShares UltraShort QQQ (ETF) (Public, NYSE:QID), Direxion Daily Finan. Bear 3X Shs(ETF) (NYSE:FAZ), Direxion Small Cap Bear 3X Shares (ETF) (NYSE:TZA)

CNBC Video Interview: Global Economy Will Suffer More Financial Crises in Next 10 Years

The Main Scenario Is An Anemic Recovery, But I Don’t Rule Out That A Double-Dip Will Occur

We know the second half of the year is going to be worse than the first half of the year because of the tailwinds to growth from the fiscal stimulus turning into austerity. The main scenario is an anemic recovery, but I don’t rule out that a double-dip will occur in the US.

in Bloomberg.com

Oil Rise Is Benefiting The Mexican Peso

“Oil is rising, and that’s something that benefits the peso. The Fed’s move yesterday is weakening the dollar, and that is obviously being reflected in the peso.”

Bertrand Delgado, economist at Roubini Global Economics LLC, New York

in Bloomberg.com

The US Should Reduce The Payroll Tax For 2 Years

“A much better option is for the administration to reduce the payroll tax for two years. The reduced labor costs would lead employers to hire more; for employees, the increased take-home pay would boost much-needed economic consumption and advance the still-crucial process of deleveraging households (paying down credit card debt and other legacies of the easy-credit years).

Most policy approaches, including the Obama proposals, have tended to subsidize the demand for capital rather than the demand for labor. That has the problem backward. In the second quarter, capital spending reached an annual growth rate of 25 percent. The argument that increased demand for capital leads to greater demand for labor (i.e., if you buy more machines you need workers to run them) has not held up. Firms are investing in capital goods, equipment and offshore offices that allow them to produce the same amount of goods with less — and lower labor costs.

To avoid a chronic increase in the unemployment rate, we need to subsidize the demand for labor — achieving job creation — rather than making it cheaper to buy capital, as investment and other tax credits would do.

President Obama could fully fund the reduction in payroll tax by allowing the Bush tax cuts for people making more than 250,000 USD a year to expire. Meanwhile, the Bush-era cuts affecting middle- and low-income earners — the vast majority of Americans — would remain in place for the time being.

After two years, when U.S. growth is more robust and the pace of private-sector hiring has picked up, we can afford to phase out the payroll tax cut while maintaining the income tax rates for the rich.”

in The Washington Post

Related ETFs: SPDR S&P 500 ETF (SPY), ProShares UltraShort S&P500 (ETF) (SDS), SPDR Dow Jones Industrial Average ETF (DIA), iShares Russell 2000 Index (ETF) (IWM)

The Fundamental Trends Might Lead To An Appreciation Of The Yen

“The size of intervention matters as well as coordination. In this case, the Bank of Japan went alone. Usually uncoordinated intervention is less effective than coordination.

The fundamental trends might lead to an appreciation of the yen further."

in Bloomberg.com

The Federal Reserve Will Move Into QE Too Little And Too Late

The Fed is not going to move next week. They’re going to move maybe in November because the latest data have been slightly better than expected. Eventually they’re going to get to QE but it’s going to be probably too little and too late.

in Bloomberg

CNBC Video Interview

Latest Nouriel Roubini video interview.

Related: iShares Russell 2000 Index (ETF) (IWM), ProShares UltraShort S&P500 (ETF) (SDS), ProShares UltraShort QQQ (ETF) (QID), iPath S&P 500 VIX Short-Term Futures ETN (VXX), Financial Select Sector SPDR (ETF) (XLF), Direxion Daily Finan. Bull 3X Shs(ETF) (FAS), Direxion Daily Finan. Bear 3X Shs(ETF) (FAZ), Technology SPDR (ETF) (XLK), Materials SPDR (ETF) (XLB), SPDR S&P 500 ETF (SPY), SPDR Dow Jones Industrial Average ETF (DIA)

We Already Have A Growth Recession

That's already a growth recession. The second half of the year is going to be worse than the first because all of the tailwinds to growth become headwinds.

in CNBC

Related: iShares Russell 2000 Index (ETF) (IWM), ProShares UltraShort S&P500 (ETF) (SDS), ProShares UltraShort QQQ (ETF) (QID), iPath S&P 500 VIX Short-Term Futures ETN (VXX), Financial Select Sector SPDR (ETF) (XLF), Direxion Daily Finan. Bull 3X Shs(ETF) (FAS), Direxion Daily Finan. Bear 3X Shs(ETF) (FAZ), Technology SPDR (ETF) (XLK), Materials SPDR (ETF) (XLB), SPDR S&P 500 ETF (SPY), SPDR Dow Jones Industrial Average ETF (DIA)

The Economy Is Going To Surprise On The Downside, The Stock Market Is Going To Correct

It will be a vicious circle because the economy is going to surprise to the downside.

The stock market is going to correct, credit spreads are going to widen. It will be a negative effect on consumption investment, the cost of capital is going to rise. And then you have another shock to the real economy, ending in a vicious cycle in which you can go off a cliff.

in CNBC.com

Related ETFs: ProShares UltraShort S&P500 (ETF) (SDS), ProShares UltraShort QQQ (ETF) (QID), iPath S&P 500 VIX Short-Term Futures ETN (VXX), Direxion Daily Finan. Bull 3X Shs(ETF) (FAS), Direxion Daily Finan. Bear 3X Shs(ETF) (FAZ) , Financial Select Sector SPDR (ETF) (XLF), Technology SPDR (ETF) (XLK), Materials SPDR (ETF) (XLB), SPDR S&P 500 ETF (SPY), SPDR Dow Jones Industrial Average ETF (DIA), iShares Russell 2000 Index (ETF) (IWM)

Canada`s Economy Can`t Decouple From Its Main Trading Partner

“Economic growth in Canada will be, at best, close to potential for the next year, year and a half, where potential probably now is closer only to 2 percent. That growth could fall as low as 1.5 percent on a weaker-than- expected U.S. economy.

Canada’s economy is stronger than the U.S., but isn’t able to decouple from its main trading partner. For an economy that’s exporting about 70 percent of its exports to the United States and another 10 percent to the euro zone, the weakness in the United States implies that Canada cannot fully decouple from that economic weakness in the United States."

in a evening speech hosted by the C.D. Howe Institute in Toronto

Related ETFs: iShares MSCI Canada Index (ETF) (NYSE:EWC), CurrencyShares Canadian Dollar Trust (NYSE:FXC)

Obama Economic Proposals W ill Not Make a Difference

“All three proposals -- the R&D tax credit, investment tax credit and infrastructure -- make reasonable economic sense. However, the size of them is not large enough to make a difference for the economic outlook.”

in Bloomberg.com

ECB Should Consider Rate Cuts to Weaken Euro

New York University Professor Nouriel Roubini said the European Central Bank should consider cutting its benchmark interest rate in an effort to weaken the euro against the dollar.

Speaking at a conference in Cernobbio, Italy Roubini said that austerity measures being implemented to cut budget deficits in Europe are a “risk” to the region’s economic recovery.

The U.S. labor market remain ‘very weak’ even after jobs data today that was better than economists’s forecasts.

in Bloomberg

Related: CurrencyShares Euro Trust (FXE)

With Interbank Spreads Rising, You Can Get A Vicious Circle Like 2008-2009

The US has run out of bullets. More quantitative easing by the Federal Reserve is not going to make any difference. Treasury yields are already down to 2.5 percent yet credit spreads are widening again. Monetary policy can boost liquidity but it can’t deal with solvency problems.

We have reached stall speed. Any shock at this point can tip you back into recession. With interbank spreads rising, you can get a vicious circle like 2008-2009.

There is a 40 percent chance of double-dip recession in the US, and worse in Japan. Even if it is not technically a recession it will feel like it.

in the Ambrosetti Conference, Lake Como, Italy

Related stocks and ETFs: PowerShares DB US Dollar Index Bullish (NYSE:UUP) , SPDR Gold Trust (ETF) (NYSE:GLD), iShares Silver Trust (ETF) (NYSE:SLV), Bank of America Corporation (Public, NYSE:BAC), JPMorgan Chase & Co. (Public, NYSE:JPM), Goldman Sachs Group, Inc. (Public, NYSE:GS), Morgan Stanley (Public, NYSE:MS), Citigroup Inc. (Public, NYSE:C), Fifth Third Bancorp (Public, NASDAQ:FITB), SunTrust Banks, Inc. (Public, NYSE:STI), Regions Financial Corporation (Public, NYSE:RF), Financial Select Sector SPDR (ETF) (Public, NYSE:XLF), Direxion Daily Finan. Bear 3X Shs(ETF) (Public, NYSE:FAZ), Direxion Daily Finan. Bull 3X Shs(ETF) (Public, NYSE:FAS), Lennar Corporation (NYSE:LEN), KB Home NYSE:KBH), D.R. Horton, Inc. (NYSE:DHI), Toll Brothers, Inc. (NYSE:TOL), The Ryland Group, Inc. (NYSE:RYL), Hovnanian Enterprises, Inc. (NYSE:HOV), Bank of America Corporation (NYSE:BAC), Wells Fargo & Company (NYSE:WFC), SunTrust Banks, Inc. (NYSE:STI), Fifth Third Bancorp (NASDAQ:FITB), Huntington Bancshares Incorporated (NASDAQ:HBAN)

Consumption Is Weak, Exports Are Weak And Housing Is Weak

In the second half, fiscal policy becomes a headwind, no more cash for clunkers. The positive scenario is that growth will be below par.

The big risk is that there will be a downturn in markets that could impact the bond, the equity and the credit markets.

Job losses have been higher, the US jobs number will show that. There is no private sector jobs growth. Consumption is weak, exports are weak and housing is weak. If there is no final sales and no final demand, companies will not invest.

in CNBC

Related ETFs: ProShares UltraShort S&P500 (ETF) (SDS), SPDR S&P 500 ETF (SPY) , SPDR Dow Jones Industrial Average ETF (DIA), ProShares UltraShort QQQ (ETF) (QID)

The Stock Market Can Sharply Correct

With growth at a stall speed of 1 percent or below, the stock markets could sharply correct, and credit spreads and interbank spreads widen while global risk aversion sharply increases.

in Bloomberg

Related stocks: Bank of America Corporation (BAC), Citigroup Inc. (C), JPMorgan Chase & Co. (JPM) , Wells Fargo & Company (WFC), HSBC Holdings plc (ADR) (HBC) , Barclays PLC (ADR) (BCS), Royal Bank of Scotland Group plc (ADR) (RBS), Banco Santander, S.A. (ADR) (STD), National Bank of Greece (ADR) (NBG)

Third Quarter Growth Will Likely Be Close To Zero

"Q3 GDP growth very likely to be below 1 percent; and likely to be closer to 0% than to a pathetically lousy 1 percent. So double dip risk is now over 40 percent"

in Washington Post

Related ETFs: ProShares UltraShort S&P500 (ETF) (SDS), SPDR S&P 500 ETF (SPY) , SPDR Dow Jones Industrial Average ETF (DIA) , iShares Russell 2000 Index (ETF) (IWM)

Deflationary Trap: We May End Up Like Japan

"In the short run we may end up like Japan in a severe deflationary trap."

in Bloomberg

Related ETFs: iShares MSCI Japan Index (ETF) (EWJ), ProShares UltraShort S&P500 (ETF) (SDS)

Monetary Policy Is Becoming Ineffective

We cannot prevent slow economic growth for a number of years. We are running out of policy bullets. Banks are sitting on 1 trillion dollars of excess reserves and cutting the interest rate on excess reserves to zero from 25 basis points isn’t going to make them lend money.

The point is monetary policy is becoming ineffective.

in Bloomberg Radio

40 Percent Of Chance Of Double Dip

"The U.S. is facing a liquidity trap, which is when financial and credit systems get stuck"

Nouriel Roubini

Israel`s Economy Is One Of The Strongest In The World

Short Summary: "New York University economist, Nouriel Roubini who foresaw the sub prime mortgage crises has said that Israel's economy is one of the strongest in the world. He was speaking in a speech to investment advisers in an initiative led by investment house Excellence. He praised Israel's fiscal and monetary management. He said Israel was a good place for investors to know about and to interest clients in."

Fasten Your Seat Belts For A Very Bumpy Ride

As the optimists’ delusional hopes for a rapid V-shaped recovery evaporate, the advanced world will be at best in a long U-shaped recovery, which in some cases – the eurozone and Japan – may be long enough to stretch into an L-shaped near-depression. Avoiding double dip recession will be difficult.

In such a world, recovery in the stronger emerging markets – the great hope for the global economy – will suffer, because no country is an island economically. Indeed, growth in many emerging-market economies – starting with China – is highly dependent on retrenching advanced economies.

Fasten your seat belts for a very bumpy ride.

Related ETFs: iShares FTSE/Xinhua China 25 Index (ETF) (NYSE:FXI), PowerShares Gold Dagonrg USX China (ETF) (NYSE:PGJ) , Morgan Stanley China A Share Fund, Inc. (NYSE:CAF), iShares MSCI Japan Index (ETF) (NYSE:EWJ)

At Best We Face A Protracted Period Of Anemic Growth

The global economy, artificially boosted since the recession of 2008-2009 by massive monetary and fiscal stimulus and financial bailouts, is headed towards a sharp slowdown this year as the effect of these measures wanes. Worse yet, the fundamental excesses that fueled the crisis – too much debt and leverage in the private sector (households, banks and other financial institutions, and even much of the corporate sector) – have not been addressed.

Private-sector deleveraging has barely begun. Moreover, there is now massive re-leveraging of the public sector in advanced economies, with huge budget deficits and public-debt accumulation driven by automatic stabilizers, counter-cyclical Keynesian fiscal stimulus, and the immense costs of socializing the financial system’s losses.

At best, we face a protracted period of anemic, below-trend growth in advanced economies as deleveraging by households, financial institutions, and governments starts to feed through to consumption and investment. At the global level, the countries that spent too much – the United States, the United Kingdom, Spain, Greece, and elsewhere – now need to deleverage and are spending, consuming, and importing less.

Gordon Gekko Reborn

In the 1987 film Wall Street, the character Gordon Gekko famously declared, “Greed is good.” His creed became the ethos of a decade of corporate and financial-sector excesses that ended in the late 1980’s collapse of the junk-bond market and the Savings & Loan crisis. Gekko himself was packed off to prison.

A generation later, the sequel to Wall Street – to be released next month – sees Gekko released from jail and returned to the financial world. His reappearance comes just as the credit bubble fueled by the sub-prime mortgage boom is about to burst, triggering the worst financial and economic crisis since the Great Depression.

The “Greed is good” mentality is a regular feature of financial crises. But were the traders and bankers of the sub-prime saga more greedy, arrogant, and immoral than the Gekkos of the 1980’s? Not really, because greed and amorality in financial markets have been common throughout the ages.

Teaching morality and values in business schools will not tame such behavior, but changing the incentives that reward short-term profits and lead bankers and traders to take excessive risks will. The bankers and traders of the latest crisis responded rationally to compensation and bonus schemes that allowed them to assume a lot of leverage and ensured large bonuses, but that were almost guaranteed to bankrupt a large number of financial institutions in the end.

To avoid such excesses, it is not enough to rely on better regulation and supervision, for three reasons:

· Smart and greedy bankers and traders will always find ways to circumvent new rules;

· CEOs and boards of directors of financial firms – let alone regulators and supervisors – cannot effectively monitor the risks and behaviors of thousands of separate profit and loss centers in a firm, as each trader and banker is a separate P&L with its own capital at risk;

· CEOs and boards are themselves subject to major conflicts of interest, because they don’t represent the true interest of their firms’ ultimate shareholders.

As a result, any reform of regulation and supervision will fail to control bubbles and excesses unless several other fundamental aspects of the financial system are changed.

First, compensation schemes must be radically altered through regulation, as banks will not do it themselves for fear of losing talented people to competitors. In particular, bonuses based on medium-term results of risky trades and investments must supplant bonuses based on short-term outcomes.

Second, repeal of the Glass-Steagall Act, which separated commercial and investment banking, was a mistake. The old model of private partnerships – in which partners had an incentive to monitor each other to avoid reckless investments – gave way to one of public companies aggressively competing with each other and with commercial banks to achieve ever-rising profitability, which was achievable only with reckless levels of leverage.

Similarly, the move from a lending model of “originate and hold” to one of “originate and distribute” based on securitization led to a massive transfer of risk. No player but the last in the securitization chain was exposed to the ultimate credit risk; the rest simply raked in high fees and commissions.

Third, financial markets and financial firms have become a nexus of conflicts of interest that must be unwound. These conflicts are inbuilt, because firms that engage in commercial banking, investment banking, proprietary trading, market making and dealing, insurance, asset management, private equity, hedge-fund activities, and other services are on every side of every deal (the recent case of Goldman Sachs was just the tip of the iceberg).

There are also massive agency problems in the financial system, because principals (such as shareholders) cannot properly monitor the actions of agents (CEOs, managers, traders, bankers) that pursue their own interest. Moreover, the problem is not just that long-term shareholders are shafted by greedy short-term agents; even the shareholders have agency problems. If financial institutions do not have enough capital, and shareholders don’t have enough of their own skin in the game, they will push CEOs and bankers to take on too much leverage and risks, because their own net worth is not at stake.

At the same time, there is a double agency problem, as the ultimate shareholders – individual shareholders – don’t directly control boards and CEOs. These shareholders are represented by institutional investors (pension funds, etc.) whose interests, agendas, and cozy relationships often align them more closely with firms’ CEOs and managers. Thus, repeated financial crises are also the result of a failed system of corporate governance.

Fourth, greed cannot be controlled by any appeal to morality and values. Greed has to be controlled by fear of loss, which derives from knowledge that the reckless institutions and agents will not be bailed out. The systematic bailouts of the latest crisis – however necessary to avoid a global meltdown – worsened this moral-hazard problem. Not only were “too big to fail” financial institutions bailed out, but the distortion has become worse as these institutions have become – via financial-sector consolidation – even bigger. If an institution is too big to fail, it is too big and should be broken up.

Unless we make these radical reforms, new Gordon Gekkos – and Charles Ponzis – will emerge. For each chastised and born-again Gekko – as the Gekko in the new Wall Street is – hundreds of meaner and greedier ones will be born.

in project-syndicate.org

Video Interview: The Economist

Latest video interview, August 2010

Topics: America's banking reforms, the risk of deflation in advanced economies and China's growth

Related ETFs:Financial Select Sector SPDR (ETF) (Public, NYSE:XLF), Direxion Daily Finan. Bear 3X Shs(ETF) (Public, NYSE:FAZ), Direxion Daily Finan. Bull 3X Shs(ETF) (Public, NYSE:FAS)

Related stocks: Bank of America Corporation (NYSE:BAC), JPMorgan Chase & Co. (NYSE:JPM), Goldman Sachs Group, Inc. ( NYSE:GS), Morgan Stanley (NYSE:MS), Citigroup Inc. (NYSE:C), Fifth Third Bancorp (NASDAQ:FITB), SunTrust Banks, Inc. (Public, NYSE:STI), Regions Financial Corporation (NYSE:RF)

China`s Slowdown

The slowdown in China’s economy looks to have continued in July, with industrial production, exports and investment all decelerating as RGE has been anticipating. Meanwhile, massive flooding and expectations for a weak fall harvest pushed up food prices, likely tipping the CPI back above the central bank’s 3% comfort level.

in RGE

Related: iShares FTSE/Xinhua China 25 Index (ETF) (NYSE:FXI), PowerShares Gold Dagonrg USX China (ETF) (NYSE:PGJ) , Morgan Stanley China A Share Fund, Inc. (NYSE:CAF)

Fed Meeting: We Do Not See Any Major Policy Moves Materializing This Week

We kick off our look at North America with the United States, where we dwell on the weak employment report last week. We expect that the dismal report will weigh on the minds of policymakers as they gather for the Federal Open Market Committee (FOMC) meeting this week. As we stated in the Q2 2010 outlook for the United States, we expect the Fed to step in and provide additional monetary stimulus. However, we do not see any major policy moves materializing this week, but we continue to look for further verbal signals regarding impending policy moves.

in RGE

Related ETFs: SPDR S&P 500 ETF (NYSE:SPY), SPDR Dow Jones Industrial Average ETF (NYSE:DIA), ProShares UltraShort S&P500 (ETF) (Public, NYSE:SDS), iShares Russell 2000 Index (ETF) (Public, NYSE:IWM)

The Price Of Oil And The Mexican Peso

“The price of oil is creating a positive impetus for the peso. The market knows the central bank will intervene when the peso appreciates too quickly.”

Bertrand Delgado, a senior economist at Roubini Global Economics LLC, New York

Brazilian Monetary Policy: When Will The Tightning Cycle End?

In Brazil, the July 21 monetary policy minutes did not provide a clear signal about when the tightening cycle will end; however, the dovish and data-dependent tone indicates further hikes of a similar size to, or smaller than, that delivered in July.

Related ETF: iShares MSCI Brazil Index (ETF) (NYSE:EWZ)

in RGE

US Stocks: Market Recap

U.S. stocks surrendered some of yesterday’s strong gains as weak data on personal income and spending and a drop in the pending home sales index, along with bleak earnings prospects from reporting consumer companies stoked fears that the economic recovery was losing momentum. Investors shunned risky assets and turned to the safety of US treasuries. Modest gains in July’s U.S. car sales also raised concerns about the health of the industry's recovery.

In earnings, 352 companies in the S&P 500 so far have reported, with 268, or 76%, beating the average estimates of analysts. Average estimates for earnings-per-share have been revised up slightly to US$20.70 from US$20.67, and actual EPS currently stands at US$20.53.

in RGE, by Tetiana Sears

Japan: Economic Outlook

Japan's unemployment rate has been rising since end-Q1 2010—in other words, since the end of the cyclical export rebound. As Japan is really still only an industrial economy, not an information economy like the U.S. or eurozone, the downturn in exports means a slowdown in industrial production and hence employment growth.

in RGE

Related ETFs: iShares MSCI Japan Index (ETF) (Public, NYSE:EWJ),

Defaults And Official Support

"In situations of insolvency, official support not only fails to prevent the eventual default, but also exacerbates the trouble, causing more damage to the country and even to its creditors."

in Forbes

Oscillations In The Euro's Exchange Rate Against The Dollar

"It's been like a beauty contest where the issue is not who's the prettiest, but who's the least ugly"

Nouriel Roubini is an American professor of Economics at New York University`s Stern School of Business and chairman of Roubini Global Economics

The Difference Between 2.5% Growth And 1.5%

"Well, the potential growth is around 2.75-3%, so if we are at 2.5% probably you create enough jobs to stabilize the unemployment rate, but at 1.5% you have job losses, unemployment goes up (...) 2.5% is close to potential while 1.5% is about half as much as potential."

in CNBC

In the Second Half Of The Year It Will Feel like A Recession

“Certainly the second half of the year has to be worse. Less than 2% in second quarter is not a recession, but everything is worse. It feels like a recession.”

in CNBC

US Economic Outlook

Video interview, CNBC, July 26.

European Stress Tests: The Assumptions Are Not Realistic Enough

"The assumptions made about economic growth, about sovereign risk are not realistic enough"

in CNBC

Don`t Jump Into Gold

"The concerns propelling the price of gold specifically are very real and should not be ignored. But is now the time for investors to jump the gold bandwagon? We wouldn’t encourage it."

in Roubini Global Economics (RGE) clients note

Related ETFs: SPDR Gold Trust (ETF) (Public, NYSE:GLD), Market Vectors Gold Miners ETF (Public, NYSE:GDX)

An Orderly Restructuring Of Greece Is Unavoidable

An orderly restructuring is unavoidable, desirable and viable in ways that benefit both the sovereign debtor and its creditors.

in CNN Money

US Growth Will Slow To 1.5 Percent In The Second Half

"US growth will slow to 1.5 percent in the second half of 2010 and into 2011, the New York University economist wrote in the Australian Financial Review newspaper. The slowdown will feel like a recession, Roubini said.

The outlook for the euro zone is worse than the U.S. and growth may be close to zero by the end of the year, he wrote."

in Bloomberg

Doug Kass Asks Nouriel 3 Questions

"In the Q&A session, I asked Nouriel three questions:

I. How can he explain the schmeissing in U.S. equities when, at the same time, certain risk measures (lower bank swap spreads, Libor, junk bond yields, a higher euro, etc.) and risk markets appear to have stabilized?

II. Could the U.S. stock market be attractive in light of generally reduced economic expectations and lower corporate profit assumptions?

III. Could the U.S. stock market be attractive with markets selling at less than 12x realistic 2011 S&P 500 profits vs. an historical average of 15.5x and at 17.0x when interest rates and inflation are quiescent?

On the first question, Nouriel agreed with my observation that, unlike the May swoon, risk metrics had stabilized. I was delighted to hear that he said he now recognizes that his principal role is as an economist, as he has learned over the past few years that there are other influences that affect the equities market and that the stock market and the economy are often (especially on a short-term basis) out of sync. On the second and third questions I asked, he felt that the stock markets were still discounting higher and unrealistic economic growth and corporate profits. I responded that my impression is that economists have ratcheted down economic and profit forecasts -- many of whom are not materially higher than him now. On question three, he admitted that, absent another dislocation, stocks might be cheap relative to history."

in The Street.com

Oil Can Rapidly Spike And Trigger A Global Recession

And one cannot exclude the possibility of an Israeli military strike on Iran in the next 12 months. If that happens, oil prices could rapidly spike and, as in the summer of 2008, trigger a global recession.

in seeking alpha

Related ETFs: United States Oil Fund LP (ETF) (Public, NYSE:USO), iPath S&P GSCI Crude Oil Total Return (Public, NYSE:OIL), ProShares UltraShort DJ-UBS Crude Oi ETF (Public, NYSE:SCO)

The Optimists’ Delusional Hopes For A Rapid V-shaped Recovery Evaporate

So, as the optimists’ delusional hopes for a rapid V-shaped recovery evaporate, the advanced world will be at best in a long U-shaped recovery, which in some cases – the eurozone and Japan – may be long enough to stretch into an L-shaped near-depression. Avoiding double dip recession will be difficult.

in seeking alpha

Risks And Challanges

“We have to recognize that Americans are adults. Then we have to speak to them straightforward about the risks and challenges that we have, rather than kicking the can down the road.”

in Bloomberg Radio

This Second Global Slowdown Could Not Have Come At A More Difficult Time

Politically, this second global slowdown could not have come at a more difficult time. In the US, Democrats and Republicans will soon retreat to their corners to prepare for November's mid-term elections. Meanwhile, President Barack Obama must again persuade America's taxpayers that a new surge in government spending is needed to protect a fragile recovery -- and at a moment when voters are telling pollsters that America's debt is as great a threat as terrorism.

in FT.com

The Global Economy Is Heading For A Serious Slowdown This Year

It looks as if the global economy is heading for a serious slowdown this year.

Emergency austerity programmes in some countries will put a drag on growth. Inventory adjustments will run their course. The effects of tax policies that steal demand from the future – such as the US “cash for clunkers” scheme, tax credits for home buyers or cash for green appliances – will fizzle out. Labour market conditions will remain weak. The slow and painful deleveraging of balance sheets and income-challenged households, financial institutions and governments will continue.

The result is governments and consumers that spent too much and now need to deleverage – in the US, Britain, Spain, Greece and elsewhere – will spend, consume and import less. But those governments and consumers that saved too much – in China, emerging Asia, Germany and Japan – are not spending more. In a world of excess supply, the recovery of global aggregate demand will be weak, pushing global growth much lower.

The most realistic scenario for global growth is painful, even if we avoid a double dip. In the US, 1.5 per cent growth in the second half of this year and into 2011 will feel like a recession, given a probable further rise in unemployment, larger budget deficits, a further fall in home prices, larger losses by banks on mortgages and loans, and the risk that a protectionist surge will further damage relations with China.

In the eurozone, growth will be closer to zero by the end of this year, as fiscal austerity and stock market corrections, along with rises in sovereign, corporate and interbank liquidity spreads, take their toll. Increases in volatility and sovereign debt risk will also undermine business and consumer confidence in ways that move beyond Europe.

Those hoping that China can keep the global economy afloat are likely to be disappointed. The world’s leading growth engine in recent years is slowing, from 11 per cent-plus towards a 7 per cent rate by year’s end. That will damage China’s exporters, while spelling bad news for export-growth in the rest of Asia, which increasingly relies on Chinese imports too.

Politically, this second global slowdown could not have come at a more difficult time. In the US, Democrats and Republicans will soon retreat to their corners to prepare for November’s mid-term elections. Meanwhile, President Barack Obama must again persuade America’s taxpayers that a new surge in government spending is needed to protect a fragile recovery – and at a moment when voters are telling pollsters that America’s debt is as great a threat as terrorism.

So the president must also tell voters that the longer-term solution to America’s economic insecurity involves both austerity and sacrifice. But abroad he faces an even larger problem. Mr Obama has limited leverage with the few remaining moderate Republicans, but the recent Group of 20 summit in Toronto showed him even less able to persuade European governments to shrug off fiscal worries. These countries seem unlikely to shift from their view that events of the past year in Greece, Spain and elsewhere – and fears of further crises to come – demand that the continent must learn to live within its means.

Nor should we expect much from the next G20 meeting in Seoul in November. A common fear of global meltdown provided some degree of unity at previous meetings. Yet, there is no longer international consensus on where tomorrow’s true dangers lie. Differing assumptions within the group over the proper role of government in a domestic economy make agreement on the details involving anything of substance very difficult.

Mr Obama’s critics often deride him as a man whose talents are limited to his fine speeches. Yet even if that were true, words matter. Plans to boost government spending in the near term, and to embrace austerity in the longer term, will only become more difficult if the president fails to explain the need for them. For their part, America’s Republicans need to accept that the path to a global recovery begins at home, with extended unemployment insurance and help for state and local governments.

Countries that save too much must also do their part for global demand. In particular, the Chinese leadership should recognise that failure to allow a more substantive revaluation of its currency will have serious consequences at home. It makes little sense to try to boost China’s local exporters while undermining the longer-term health of their best customers. Beijing must also move much more quickly to boost China’s domestic consumption.

The eurozone needs fiscal austerity, but it also needs a level of growth best provided by an easing of monetary policy from the European Central Bank. Early debt-restructuring of insolvent members should also be on the agenda. Germany should postpone its fiscal consolidation for a couple of years to boost disposable income and consumption. Outside Europe, Japan must accelerate economic reforms.

These steps will take time. Even if all are undertaken properly, global growth will recover only slowly. But if they are not undertaken at all, the risk of a global double dip, and a new financial crisis, will grow sharply. Policymakers cannot keep kicking the can down the road for much longer.

in FT.com, by Nouriel Roubini and Ian Bremmer

The Ability To Backstop The Financial System Is Not There

A year ago we had all these policy bullets. We could push down rates to zero, we had quantitative easing, we could do a budget deficit of 10 percent of GDP or backstop the financial system.

Banks at this point are too big to fail, but also too big to be bailed, especially in Europe where the sovereigns are in trouble and therefore the ability to backstop the financial system is not there.

in www.dailymarkets.com

Related stocks: Banco Santander, S.A. (ADR) (Public, NYSE:STD), Banco Bilbao Vizcaya Argentaria SA (ADR) (Public, NYSE:BBVA), Royal Bank of Scotland Group plc (ADR) (Public, NYSE:RBS), Lloyds Banking Group PLC (ADR) (Public, NYSE:LYG), Barclays PLC (ADR) (Public, NYSE:BCS), National Bank of Greece (ADR) (Public, NYSE:NBG), Credit Suisse Group AG (ADR) (Public, NYSE:CS)

Everything Signals A Global Slowdown

"Everything signals a slowdown of the US, a slowdown of Europe, a slowdown of Japan and a slowdown of China"

in CNBC

Banks Are Too Big To Fail, But Also Too Big To Be Bailed

"Banks at this point are too big to fail, but also too big to be bailed, especially in Europe where the sovereigns are in trouble and therefore the ability to backstop the financial system is not there."

in CNBC

German And Canadian Government Bonds Are Safe Haven

Nouriel Roubini, the New York University economist credited with predicting the financial crisis, said that government bonds of countries such as Germany, Canada and the U.S. will represent a haven from increasingly volatile markets in coming months.

in Bloomberg

Zero Growth In Eurozone

"Given the shocks of the last few months, by year-end, euro zone growth could be closer to zero percent"

in CNBC

The Global Economy Will Slow In Coming Months

"Nouriel Roubini, the New York University economist who is credited with predicting the financial crisis, said he expects the global economy to slow in coming months as governments slash budget deficits. U.S. growth will drop to about 1.5 precent by the end of 2010, while the euro area’s expansion may stall, he said at a conference in Aix en Provence, France."

in Business Week

The Economy Is Weakening

I don’t think we are going to have a third depression but the risk of a double dip recession are risign. Even in the US, the growth the second half of the year is going to fall towards one and a half per cent. The economy is weakening.

in Fox Business

CNBC Video Interview: A Double Dip Recession?

Discussing whether the recession is headed for a double-dip, with Nouriel Roubini, Roubini Global Economics chairman.

Greece’s Best Option Is An Orderly Default

It is time to recognise that Greece is not just suffering from a liquidity crisis; it is facing an insolvency crisis too. Rating agencies have started to downgrade its public debt to junk level, while spreads on Greek sovereign bonds last week spiked to new highs. The €110bn bail-out agreed by the European Union and the International Monetary Fund in May only delays the inevitable default and risks making it disorderly when it comes. Instead, an orderly restructuring of Greece’s public debt is needed now.

Nouriel Roubini, FT.com

Book Review: Crisis Economics: A Crash Course in the Future of Finance

"Crisis Economics: A Crash Course in the Future of Finance"
by Nouriel Roubini and Stephen Mihm (2010)

"In 2008 when others saw a liquidity crisis, [Roubini] saw the truth of the matter -- a credit crisis. The book reads very easily and draws one in to this remarkable story that traces and explains step by step the elements of the crisis." - John A. Haslem, professor emeritus of finance

Dr Doom Or Dr Reality?

"I would rather be called a 'Dr Realist', who is neither pessimistic nor optimistic, but someone who wants to be right and tries to figure out the upside of the risk"

in China Daily

China: In The Short Term The Economy Is Overheating

"There is no need to exit the stimulus right away, but you have to think about it and phase it out, because in the short term the economy is overheating."

in People`s Daily Online

The US Budget Deficit Is 11% Of US GDP. Not Very Far From Greece`s 13%.

The US today is having a budget deficit of 0.5 trillion dollars this year, that’s 11 percent of US GDP, that’s not very far from the 13 percent of Greece. And the US is much bigger than Greece.

in Making Sense

The Size Of The Renmimbi Appreciation Will Be Modest

"Even if the Chinese were to allow a gradual renminbi appreciation relative to the U.S. dollar, the size of such appreciation would be modest over the next year, not more than 3 or 4 percent as the trade surplus has shrunk, growth is likely to slow down on China and labor/employment unrest remains of concern to the Chinese."

in Reuters

Chinese Currency Policy

"This is the first significant signal in years of a change in Chinese currency policy."

in Reuters

There`s A Rising Risk Of A Breakup Of The Monetary Union

“There’s a rising risk of breakup of the monetary union, and the ECB will have to play an important role to prevent that from happening”

in Bloomberg.com

Policymakers Are Damned If They Do And Damned If They Don`t

There is an ongoing debate among global policymakers about when and how fast to exit from the strong monetary and fiscal stimulus that prevented the Great Recession of 2008-2009 from turning into a new Great Depression. Germany and the European Central Bank are pushing aggressively for early fiscal austerity; the United States is worried about the risks of excessively early fiscal consolidation.

In fact, policymakers are damned if they do and damned if they don't. If they take away the monetary and fiscal stimulus too soon - when private demand remains shaky - there is a risk of falling back into recession and deflation. While fiscal austerity may be necessary in countries with large deficits and debt, raising taxes and cutting government spending may make the recession and deflation worse.

On the other hand, if policymakers maintain the stimulus for too long, runaway fiscal deficits may lead to a sovereign debt crisis (markets are already punishing fiscally undisciplined countries with larger sovereign spreads). Or, if these deficits are monetised, high inflation may force up long-term interest rates and choke off economic recovery.

The problem is compounded by the fact that, for the last decade, the US and other deficit countries - including the United Kingdom, Spain, Greece, Portugal, Ireland, Iceland, Dubai, and Australia - have been consumers of first and last resort, spending more than their income and running current-account deficits. Meanwhile, emerging Asian economies - particularly China - together with Japan, Germany, and a few other countries have been the producers of first and last resort, spending less than their income and running current-account surpluses.

Overspending countries are now retrenching, owing to the need to reduce their private and public spending, to import less, and to reduce their external deficits and deleverage. But if the deficit countries spend less while the surplus countries don't compensate by savings less and spending more - especially on private and public consumption - then excess productive capacity will meet a lack of aggregate demand, leading to another slump in global economic growth.

in TodayOnline

How To Avoid A Double Dip Recession

First, in countries where early fiscal austerity is necessary to prevent a fiscal crisis, monetary policy should be much easier – via lower policy rates and more quantitative easing – to compensate for the recessionary and deflationary effects of fiscal tightening. In general, near-zero policy rates should be maintained in most advanced economies to support the economic recovery.

Second, countries where bond-market vigilantes have not yet awakened – the US, the UK, and Japan – should maintain their fiscal stimulus while designing credible fiscal consolidation plans to be implemented later over the medium term.

Third, over-saving countries like China and emerging Asia, Germany, and Japan should implement policies that reduce their savings and current-account surpluses. Specifically, China and emerging Asia should implement reforms that reduce the need for precautionary savings and let their currencies appreciate; Germany should maintain its fiscal stimulus and extend it into 2011, rather than starting its ill-conceived fiscal austerity now; and Japan should pursue measures to reduce its current-account surplus and stimulate real incomes and consumption.

Fourth, countries with current-account surpluses should let their undervalued currencies appreciate, while the ECB should follow an easier monetary policy that accommodates a gradual further weakening of the euro to restore competiveness and growth in the eurozone.

Fifth, in countries where private-sector deleveraging is very rapid via a fall in private consumption and private investment, the fiscal stimulus should be maintained and extended, as long as financial markets do not perceive those deficits as unsustainable.

Sixth, while regulatory reform that increases the liquidity and capital ratios for financial institutions is necessary, those higher ratios should be phased in gradually to prevent a further worsening of the credit crunch.

Seventh, in countries where private and public debt levels are unsustainable – household debt in countries where the housing boom has gone bust and debts of governments, like Greece’s, that suffer from insolvency rather just illiquidity – should be restructured and reduced to prevent a severe debt deflation and contraction of spending.

Finally, the International Monetary Fund, the European Union, and other multilateral institutions should provide generous lender-of-last-resort support in order to prevent a severe deflationary recession in countries that need private and public deleveraging.

In general, deleveraging by households, governments, and financial institutions should be gradual – and supported by currency weakening – if we are to avoid a double-dip recession and a worsening of deflation. Countries that can still afford fiscal stimulus and need to reduce their savings and increase spending should contribute to the global current-account adjustment – via currency adjustments and expenditure increases – in order to prevent a global shortage of aggregate demand.

Failure to implement such coordinated policy measures – to sustain global aggregate demand at a time when deflationary trends are still severe in advanced economies – could lead to a very dangerous and damaging double-dip recession in advanced economies. Such an outcome would cause another bout of severe systemic risk in global financial markets, trigger a series of contagious sovereign defaults, and severely damage the growth prospects of emerging-market economies that have so far experienced a more robust recovery than advanced countries.

in Benzinga.com

US Will Avoid A Double Dip

In an interview to CNBC-TV18, Roubini said that the United States is going to avoid a double dip recession. However he warned that in the second half of the year the growth is likely to be below 2%. With a negative outlook for the second half, he said the US economy may be hit by high unemployment rate, fall of housing markets in terms of prices and large budget deficits.
in CNBC India

The ECB Should Move Rates To Zero

“That has to be the policy mix: tight fiscal, but much more easy money, looser monetary policy, more quantitative easing and also a weakening of the euro. Going to zero alone is not going to be enough, it’s 100 basis points. They need to go to zero, they need to do more quantitative easing, they need to support dysfunctional markets, they need to signal that they are actually not uncomfortable with a weaker euro as long as that is a gradual and orderly process.”

in Bloomberg

Risks Of A Double Dip In The Euro Zone

"I would say that the risk of a double-dip recession is highest in the euro zone… I would say there is a more than 50 percent probability, if not of a technical double-dip then of economic stagnation in the area"

in CNBC

Hungary: Government Is Preparing New Fiscal Austerity

“The new government is preparing the public for new fiscal austerity. Hungarian policymakers exacerbated the country’s fiscal situation. The new government came to power and tried to blame the past government."

in Bloomberg

Restructuring The Public Debt Of Greece

“What we need to do to avoid having massive losses for the financial system is an orderly restructuring of the public debt of Greece. Stabilizing your public debt-to-GDP ratio at 145 percent is not stability. Calling it stability is a bit of a joke.

The value of the euro has to fall significantly lower, certainly towards parity if not below, to help prevent a breakup of the monetary union. So far the ECB is not recognizing this problem, but they will have to recognize it and do something about it. Otherwise the liquidity crunch is going to get only worse."

Zermatt Summit in Switzerland

There Is Evidence Of Overheating In Emerging Economies

“In Brazil, like in many other emerging market economies, there is now evidence of overheating of the economy. Expected and actual inflation is starting to rise, and that implies that over the next few quarters there has to be a tightening of monetary policy, gradually but progressively, in order to make sure that inflation expectations remain anchored."

in Business Week

Brazil And India Are Better Then China

Brazil and India are in a better shape than China regarding the strength of domestic demand. Emerging markets can grow between 5 percent and 8 percent during the global economic recovery compared to between 2 percent and 3 percent for rich nations.

in Bloomberg

Bond Vigilantes Are Going To Wake Up In The United States

"Bond market vigilantes have already woken up in Greece, in Spain, in Portugal, in Ireland, in Iceland, and soon enough they could wake up in the U.K., in Japan, in the United States, if we keep on running very large fiscal deficits. The chances are, they are going to wake up in the United States in the next three years and say, this is unsustainable."

in Bloomberg News