government debt

Nouriel Roubini: ‘For Now, I Don’t See The Crash Approaching’

While not an “official” Crash Prophet, I’ve still made it a point to follow Nouriel Roubini (former Clinton administration Treasury official, NYU economics professor, and Roubini Global Economics chairman) through the years primarily because of his early and correct prediction of the 2008 global financial crisis. Back in February 2012, I blogged about a 2005 New York Times interview in which “Dr. Doom”- as the financial media likes to call him- warned that the U.S. housing market was in a bubble that would pop and bring about a global economic recession (or even depression).

Fast forward to November 2017. Business Insider Poland’s Damian Szymański recently had the opportunity to interview Dr. Roubini and ask him about a coming economic crisis. From their exchange:

BUSINESS INSIDER: If you succeeded to forecast the biggest crash in the global economy since the Great Depression of the 1920s, I have to ask you this particular question: does the world faces the similar fate right now? Do you notice any symptoms of the upcoming crisis?
ROUBINI: I don’t see similar threats for next one-and-a-half to two years. But in a long-term, there will be some kind of crisis, that’s certain. But whether it’s going to be in the US, China or Japan, we don’t know. Will its reach be global or local? We don’t know it either. But one has to remember that a crisis is not something unpredictable, like an earthquake. All crises build up- gradually, step by step. We keep climbing, higher and higher until we reach the final point. And that- Bam! We have a crash.
BUSINESS INSDIER: So, right now, are we in the middle of this road toward the peak? Or do we just start climbing?
ROUBINI: There are certain spots in the US over-leveraged enterprise sector that can cause trouble. The non-bank financial sector or rising government debt is also worrying, but for now, I don’t see the crash approaching. But the situation needs careful monitoring. The debt has to be spent on investment, not consumption- this is the only way to avoid another financial crisis.

(Editor’s note: Bold added for emphasis)

An insightful interview, which can be read in its entirety on the Business Insider website here.

By Christopher E. Hill
Survival And Prosperity (www.survivalandprosperity.com)

(Editor’s note: A qualified professional should be consulted prior to making a financial decision based on material found in this weblog. If this recommended course of action is not pursued, then it must be understood that the decision is the reader’s and the reader’s alone. Christopher E. Hill, the creator/Editor of this blog, is not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented on the site.)

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Wednesday, November 29th, 2017 Asia, Crash Prophets, Debt Crisis, Government, Investing No Comments

Nouriel Roubini: The Pollyannas Are Wrong As Usual, The U.S. Economy Is Slowing

It’s been a few months since I last mentioned Dr. Nouriel Roubini, a former Treasury official in the Clinton administration who correctly-called the 2008 global financial crisis. But last Friday the professor at NYU’s Stern School of Business and Chairman of Roubini Global Economics appeared on the Project Syndicate website to call out the economic Pollyannas and warn the U.S. economy is slowing. Roubini wrote:

While the risk of a disorderly crisis in the eurozone is well recognized, a more sanguine view of the United States has prevailed. For the last three years, the consensus has been that the US economy was on the verge of a robust and self-sustaining recovery that would restore above-potential growth. That turned out to be wrong, as a painful process of balance-sheet deleveraging – reflecting excessive private-sector debt, and then its carryover to the public sector – implies that the recovery will remain, at best, below-trend for many years to come.

Even this year, the consensus got it wrong, expecting a recovery to above-trend annual GDP growth – faster than 3%. But the first-half growth rate looks set to come in closer to 1.5% at best, even below 2011’s dismal 1.7%. And now, after getting the first half of 2012 wrong, many are repeating the fairy tale that a combination of lower oil prices, rising auto sales, recovering house prices, and a resurgence of US manufacturing will boost growth in the second half of the year and fuel above-potential growth by 2013.

The reality is the opposite: for several reasons, growth will slow further in the second half of 2012 and be even lower in 2013 – close to stall speed.

(Editor’s note: Italics added for emphasis)

The “crash prophet” offers up some good arguments as to why the U.S. economy is slowing, not recovering. You can read the entire piece on the Project Syndicate website here.

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Marc Faber Warns ‘Massive Wealth Destruction Coming Down The Line’

CNBC’s Squawk Box talked to “Doctor Doom” Marc Faber yesterday morning, and boy did he ever dish out a case of the Mondays. The Swiss-born investment adviser/fund manager told CNBC viewers:

Well, basically, I think that the whole bailout and those with the money printing will not create long lasting wealth, nor will it create healthy economic growth. And I look at the world, then I see well-to-do people that have done unbelievably well, and I see the middle class and the working class that hasn’t done well. And I think somewhere down the line, we will have a massive wealth destruction that usually happens either through very high inflation, or through social unrest, or through war, or a credit market collapse. Maybe all of it will happen but at different times.

(Editor’s note: Italics added for emphasis)

The publisher of the monthly investment newsletter The Gloom Boom & Doom Report was asked to put a number on this destroyed wealth, and Dr. Faber responded:

Well, I would say that well-to-do people may lose up to 50 percent of their total wealth. They’ll still be well-to-do. Instead of a billion, they’ll have, say $500 million. But I think that there is a massive wealth destruction coming down the line. I’m not saying it will happen tomorrow. But I think looking at the bailouts, and the money printing, they basically have postponed the problems, and actually made them larger in the sense that the government debt has increased dramatically, and somewhere a solution will have to be found for this government debt.

(Editor’s note: Italics added for emphasis)

Faber, who became famous for advising clients to get out of the U.S. stock market one week before the October 1987 crash and for predicting the 2008 global financial crisis (among other calls), gave the following investment advice:

Well, I think, in my report I also pointed out there is one asset class that is relatively depressed, and these are properties in the South of the United States. In Georgia, in Arizona, in Florida- I think there, property values will not collapse much more, and stabilize. And so I think to own some land and some property, not necessarily in the financial centers but in the secondary cities, is a desirable investment relatively speaking. And I think people should own some gold, and I think people should own some equities, because before the collapse will happen with Mr. Bernanke at the Fed, they’re going to print money- and print, and print, and print. And so what you can get is a bad economy, but rising equity prices.

(Editor’s note: Italics added for emphasis)

You can watch the entire segment on the CNBC website here.

(Editor’s notes: I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein; info added to “Crash Prophets” page)

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Standard & Poor’s Changes U.S. Rating Outlook To Negative

I was prepping the post “The Crash Prophets Revisited, Part 2” when I heard Standard & Poor’s lowered its outlook on the United States. From the Standard & Poor’s press release announcing the action:

‘AAA/A-1+’ Rating On United States of America Affirmed; Outlook Revised To Negative

• We have affirmed our ‘AAA/A-1+’ sovereign credit ratings on the United States of America.
• The economy of the U.S. is flexible and highly diversified, the country’s effective monetary policies have supported output growth while containing inflationary pressures, and a consistent global preference for the U.S. dollar over all other currencies gives the country unique external liquidity.
• Because the U.S. has, relative to its ‘AAA’ peers, what we consider to be very large budget deficits and rising government indebtedness and the path to addressing these is not clear to us, we have revised our outlook on the long-term rating to negative from stable.
• We believe there is a material risk that U.S. policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013; if an agreement is not reached and meaningful implementation is not begun by then, this would in our view render the U.S. fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns.

MarketWatch’s Steve Goldstein and Deborah Levine wrote about the move this afternoon:

Standard & Poor’s cut its ratings outlook on the U.S. to negative from stable on Monday, lighting a fire under Washington’s deficit-reduction debate and sending stock markets sharply lower.

The rating agency effectively gave Washington a two-year deadline to enact meaningful change, just days after House Budget Committee Chairman Paul Ryan and President Barack Obama each outlined their plans for slashing debt. S&P nonetheless kept its highest rating, AAA, on the U.S…

“The fiscal profile of the U.S. is increasingly diverging from that of its AAA peers,” said David Beers, an S&P analyst, on a conference call. “This was the time to update our opinion.”

It’s the first time S&P lowered its outlook for the U.S. from stable… The outlook change indicates a one in three chance of an actual rating downgrade over the next few years, Beers said.

The U.S. is one of 19 sovereign governments rated AAA by S&P, out of 127 rated countries. But all of the closest AAA peers — Germany, France, Canada and the U.K. — have done more to address their fiscal problems coming out of the recession, which in some cases were worse than what the U.S. experienced, analysts said.

You can read the entire press release on Standard & Poor’s website here.

“The Crash Prophets Revisited, Part 2” will be pubished tomorrow.

Sources:

“‘AAA/A-1+’ Rating On United States of America Affirmed; Outlook Revised To Negative.” Standard & Poor’s (Press Release). 18 Apr. 2011. (http://www.standardandpoors.com/ratings/articles/en/us/?assetID=1245302886884). 18 Apr. 2011.

Goldstein, Steve and Levine, Deborah. “S&P cuts U.S. rating outlook to negative.” MarketWatch. 18 Apr. 2011. (http://www.marketwatch.com/story/sp-cuts-us-rating-outlook-to-negative-2011-04-18?pagenumber=1). 18 Apr. 2011.

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