CNBC Video Interview

Latest Nouriel Roubini video interview.

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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

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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

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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

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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

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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

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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

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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

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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

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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.

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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