Global crisis politics – A Davos debate with Nouriel Roubini and Ian Bremmer

By Andrew MacGregor Marshall
January 28, 2009

As governments grapple with the global crisis, politics has taken on central importance in determining the course of the world economy — and political risk is more significant than ever.

Two leading experts on the financial crisis and its political dimensions — Nouriel Roubini and Ian Bremmer — gave exclusive answers this week to Reuters questions on the key risks for 2009 and beyond, and the countries to watch.

Roubini is professor at the Stern School, New York University and chairman of economic forecasting consultancy RGE Monitor. He is widely credited as one of the few leading economists to forecast the onset of the crisis and its implications. Bremmer is president of political risk consultancy Eurasia group, and co-author of the forthcoming book “”The Fat Tail: The Power of Political Knowledge for Strategic Investing”

In which countries do political and economic risks intersect most ominously in 2009?

bremmerBremmer – I would start with the United States. How U.S. policymakers respond to the meltdown of the U.S. economy hugely affects both the global financial crisis itself and much of the associated political risk. The politics are especially worrisome because the new Congress will likely wrestle with the White House for control in several key policy areas.

In Congress, members of both political parties have complained that the legislative branch ceded too much policy authority to the executive branch over the past eight years. The new Congress wants that power back. The Democratic leadership now enjoys large majorities in both the House (257-178) and the Senate (probably 59-41). Feeling empowered, even Democratic senior lawmakers won’t always wait on the inexperienced young president to set the agenda. That dynamic creates even greater risks than usual that policy will become a product of political horse-trading rather than coherent economic analysis.

Elsewhere, the economic and the political fronts are colliding to generate turmoil and risk. In Russia, the financial crisis has slowed the economy and put downward pressure on the ruble, reducing the purchasing power of ordinary Russians. The government has had to spend down significant amounts of its considerable financial reserves. There is anxiety about the health of Russian banks. Prime Minister Putin and President Medvedev remain popular and fully in charge — for now.

But job losses in key industries and factory closures in single-industry towns could push unemployed workers into the streets provoking a showdown with local authorities. That could force the Russian government into domestic repression to maintain social order. Russian foreign policy has also become more aggressive in recent months. The recent stand-off with Ukraine over natural gas exports-and Russia’s seeming indifference to the damage that conflict has done to its reputation as a reliable commercial partner for Europe-demonstrate that Moscow continues to pursue geopolitical interests at the expense, if necessary, of its economic well-being.

In Ukraine, political and economic risks exacerbate one another. Political rivalries among President Viktor Yushchenko, Prime Minister Yulia Tymoshenko, and opposition leader Viktor Yanukovych have produced policy paralysis on all but the most urgent of economic problems. The damage inflicted by the global financial crisis on Ukraine’s real economy further sharpens this political conflict. There are fewer customers for Ukraine’s steel exports, a key source of government revenue. The slowdown in production and a spike in unemployment have only intensified the blame-game now burdening Ukrainian politics. In Turkey, too, political squabbles make coherent and effective economic policy more difficult. The deepening political conflict between the ruling AKP (a moderate religious party) and determined secularist elites within the business community, the media, and the military has prevented the government from pursuing the economic reforms that might ease the country’s long-term dependence on the International Monetary Fund.

roubini-pixRoubini – The U.S. is experiencing its worst financial crisis since the Great Depression and its most severe recession in decades: a severe housing bust is entering its fourth year of decline and there is no bottom in sight. The recession will last at least 24 months (December 2009) and the recovery may be so weak, and growth sub-par until 2011, that it will feel like a recession even once the economy will be technically out of it by 2010. The banking system is effectively insolvent, as credit losses will swell above $3 trillion and fiscal deficits above $1 trillion loom for the next 2-3 years.

A weakened U.S. economy and financial system may not be able to remain the leader of the world and may move towards trade and financial protectionism. We’re all aware that foreign actors have financed most of this debt over the past several years. During the 1980s, the U.S. also faced the burden of twin deficits, but relied on financing from key strategic partners like Japan and Germany. This time, the situation is more worrisome because today’s financing comes not from U.S. allies, but from strategic rivals like Russia, China and a number of relatively unstable petro-states. This leaves the U.S. perilously dependent on the kindness of strangers.

A financial crisis and recession that may turn out to be as severe in the EU will put strains on the economic and monetary union in Europe. Talk of a break-up — in a matter of years — of the monetary union, as its weakest links (Spain, Portugal, Italy and Greece) are unable to implement structural reforms to restore growth, will weaken any further drive towards a political union in Europe.

The most severe and synchronized global recession in decades — both in advanced economies and emerging markets — will lead to political stress, turmoil and even violence in some emerging market economies. Some — but not all — of the emerging markets under financial stress may experience outright financial crises (a combination of currency crises, banking crises, sovereign debt crises). These include Latvia, Estonia, Lithuania, Hungary, Romania, Bulgaria, Turkey, Belarus, Ukraine and Russia in emerging Europe; Iran, Pakistan, Indonesia and even South Korea in Asia; Venezuela, Argentina, Ecuador and possibly Mexico in Latin America. Of these countries, those where the geopolitical and domestic political risks are more serious in 2009 are Turkey, Ukraine, Russia, Venezuela, Mexico Iran, Pakistan.

An open question is whether — with oil prices remaining very low in the $30-40 range — the unstable petro-states Venezuela, Iran, Russia) will become more unstable or more malleable. While low oil prices may lead to economic and financial hardship the authorities may react to such economic weakness with more aggressive foreign policies.

Conversely, which countries or regions will see a relatively benign political and economic risk environment?

Roubini - This is the first globally synchronized recession and there are very few places to hide as the forces of recoupling shatter the myth of decoupling: first markets and then real economies have become almost perfectly correlated. Among the BRICs, Brazil and India are less affected than Russia and China, but even Brazil will suffer from falling commodity prices, shrinking export markets and an increase in investors’ risk aversion; thus growth may be barely positive.

India depends less than China on global trade flows, but it depends more on capital flows to finance a large current account deficit, and its’ banking system financed a credit boom with foreign liquidity that is now drying up.

A hard landing in Russia is unavoidable with growth being sharply negative (-3 percent or worse) if oil prices average $40 a barrel this year. For a country like China that needs a growth rate close to 10 percent to move 10 million poor rural farmers every year to the modern urban industrial sector, a drop to 5 percent growth or below (a most likely outcome) is effectively a hard landing. Since the legitimacy of the Communist Party depends on achieving high growth, I believe the hard landing that China will experience this year will have political consequences. Even when growth was 10 percent plus China had over 70,000 mass protests every year according to official records; with growth in the hard landing territory (actually likely negative in Q4 of 2008 and through the middle of 2009) protests will increase, especially as millions of migrant workers return to cities after the Chinese New Year to find that there are no jobs, and as millions of university graduate discover a challenging job market. So while the risk of a political revolution is limited, the more severe the hard landing, the more likely is the chance that the anger of the masses is converted towards the domestic authorities, rather than being channeled in a nationalistic and anti-foreign direction.

Bremmer - I would argue that China will remain politically stable throughout 2009, despite having seen tens of thousands of large-scale protests in recent years. But social unrest usually targets local officials and companies blamed for corruption, land expropriations, environmental problems and other local grievances. Very few of these protests target the Chinese Communist Party elite. Rather, many Chinese credit the Party for engineering decades of explosive economic growth and an ever-rising standard of living. The triumphal pageantry of last summer’s Beijing Olympic Games was expertly produced by the Party leadership, creating a focal point for a strong surge in Chinese national pride. The party has built a large stockpile of domestic goodwill over the past three decades. Toughening economic times will erode some of that credit, but the reserves are probably too deep for the Chinese government to face a dangerous large-scale domestic challenge to civil order in 2009.

Despite security worries, serious tensions in its relations with Pakistan and the uncertainties of an election season, India remains quite stable politically. The same is true for Brazil, where President Luis Inacio Lula da Silva has helped build a consensus across the political left in favor of relatively responsible macroeconomic policy. The Persian Gulf States remain both politically stable and, with the partial exception of Dubai, quite healthy economically.

How big a role do geopolitical factors play in driving global markets? And can their market impact ever be forecast with any degree of accuracy?

Bremmer – Sometimes the impact of geopolitical factors is substantial and at other times, it is more modest. But in the broadest context, we’re entering a period in which political risk will matter more for the markets than in the recent past.

Globally, today’s leading multinational institutions — the UN Security Council, the IMF, the World Bank, etc — no longer reflect the true balance of political and economic power in the world. Leaders of the G7 group of leading industrialized nations know this. That’s why the first attempt at a coordinated response to the global financial crisis came from the G20, a more diverse group that better reflects today’s international order, offering hope that its response that will win broader international acceptance. The problem with the G20, however, is that consensus is nearly impossible. Getting seven people to agree on something important is one thing. Getting 20 to agree is much more difficult — especially when they have different value systems.

We are moving away from a system in which the United States plays a dominant political and economic role toward a non-polar world order. But the leading emerging powers are reluctant to accept the burdens that come with a greater global role. So, there will be even less international cooperation on global issues, like climate change and proliferation, and fewer international fora able to arbitrate disputes.

During 2009, political risk is especially dangerous because of the intense focus on the global financial crisis. Distracted markets are less likely to price in the risks linked to the international conflict over Iran’s nuclear program, dangerous instability in Pakistan, Russia’s assertive, even aggressive, foreign policy, and possible large-scale unrest in Iraq as various militia groups and others rush to fill the vacuum left by departing U.S. troops and to control that country’s oil.

The market impact of a particular risk is always difficult to forecast with complete confidence because there are so many relevant variables. But just as oil prices rise or fall in response to political events, a particular election outcome, social unrest, or a surprise policy reversal can add substantial upward or downward pressure on equities and currencies around the world.

Historically, political risk has been more relevant in emerging markets, which I would define as any country in which politics matters at least as much as economics for the performance of markets. But it’s notable this year that, by this definition, the United States is behaving like an emerging market. Consider all of the various political considerations that go into deciding how (and whether) to bail out U.S. automakers or how best to design an economic stimulus package.

Roubini – Geopolitical shocks can — at times- – have a significant market impact, especially oil price shocks. Indeed the global recessions of 1974-75, 1980-82 and 1990-91 followed three oil price shocks (the Yom Kippur war, the Iranian revolution and the Iraqi invasion of Kuwait); and even the 2001 recession — driven by the tech bust — was in part aggravated by the doubling in oil prices following the second Palestinian intifada. This year, demand fundamentals should keep prices lower, but two risks remain: a military conflict between Israel and Iran over nuclear proliferation, and a successful attempt by OPEC to restrict oil production. The former scenario would be much more disruptive as a stagflationary oil price shock is the last thing needed by a world in the most severe recession in decades; but even the latter scenario could spike oil well into the $70s range and become an additional drag to negative global growth.

Geopolitical risks would also become more severe if a U-shaped global recession were to mutate — because of mistaken policy responses — into an L-shaped stag-deflation (a deadly combination of economic stagnation, recession and deflation). After all, the stock market crash of 1929 turned into a Great Depression because of poor monetary, banking and fiscal responses. When the Depression became global, trade wars — starting with the Smoot-Hawley tariff — further contracted global exports and imports, capital controls became pervasive and defaults in emerging markets became the norm. Some similar risks are emerging today as countries become more protectionist and impose capital controls. Ecuador already defaulted on its foreign debt and others are teetering on the verge of a sovereign debt crisis. In the 1930s, the botched policy response and severe depression led to the rise of nationalistic, militaristic and aggressive regimes in Italy, Germany, Spain, Japan to name a few. The final result was World War II.

Today, the lessons of the Great Depression have hopefully been learned and a destabilizing L-shaped global stag-deflationary slump should be avoided. But monetary easing is weak in some regions and is less effective in the presence of insolvency/credit problems. Fiscal stimulus is constrained in many countries by previous high deficits and debts and cleaning up and bailing out the financial system is constrained by the “too-big-to-save” banks (i.e. losses in large, internationally active banks are much larger than the resources of small open economies to rescue them). And widespread and disorderly defaults by households, firms and financial institutions may follow a severe debt deflation.

Can political risk ever be quantified and ‘priced in’ in asset prices and markets? Or has the global crisis shown that markets are not capable of correctly pricing complex risk?

Bremmer – The impact of the war in Iraq was priced in. Markets rose once the invasion began. But we can’t say the same for Iran this year. The context is different, because the threats posed in the Iran case are less obvious and more difficult to predict. A vast majority of the analysts on Wall Street have backgrounds in economics. They price in political risk less effectively than economic risk.

Roubini - The global financial crisis — missed by most analysts — shows that most forecasters are poor at pricing in economic/financial risks, let alone geopolitical ones. In normal times, markets are poor at pricing low probability, fat tail risks (black swan events), but the recent global financial crisis was a white swan event, as it followed a gradual build-up of predictable financial vulnerabilities that were ignored by most. But when the proverbial financial or geopolitical shocks hit,
the market over-reaction can become severe, as fear follows greed and markets tend to react in extremely risk-averse ways, replacing the denial and indulgence of good times with the extreme risk-aversion of bad times.

Is there likely to be a trend toward greater protectionism and nationalist economic policies around the world in 2009? What will be the implications for the global economy?

Roubini – Protectionist pressure will become more severe if the global economic slump is more protracted and deep. Certainly Doha is dead as multi-lateral trade liberalisation is impossible. Protectionist tariff actions have already started to emerge in places such as Russia and India and they may spread further. Trade-distorting subsidies are more likely than tariffs (see the rescue of Big Auto in the US). Currency tensions — for example between the U.S. and China — could escalate into trade wars. One also needs to worry about financial protectionism as a backlash against sovereign wealth funds and even FDI that may take place.

The new U.S. administration is dominated by pro-globalisation figures (such as Tim Geithner and Larry Summers), but Obama’s choice for Labor Secretary and U.S. Trade Representative, and the ongoing pressures by trade unions, counter-balance these free-trade leaning forces. And the fact that the new Treasury Secretary Geithner used the dirty M-word against China points to the risk that the fight about how much the RMB should further appreciate will turn into a trade war. Certainly, a China worried about the collapse of its exports and a hard landing may be tempted to have the RMB depreciate, or certainly not appreciate further.

Bremmer - There will be a heavy nationalist influence on economic policies globally this year because the overwhelming priority among political players will be to stimulate economies, growth and job creation. These are “national” projects. Governments will appeal to national pride to maintain domestic support. In Iceland, politicians are calling for a return to local traditions of strength and self reliance. In Russia, economic policy is intended to maintain Russia’s new strength. In America, President Obama is calling for shared sacrifice and an “era of responsibility”. We will see austerity programs all over the world this year. Austerity breeds populism, but populism can easily breed protectionism in any country with significant exposure to international markets. If one country finds political advantage in throwing up a wall to protect a vulnerable industry or economic sector, other governments will have a political incentive and justification to do the same. The West has preached the virtues of free trade and free markets for years. Now, many in the developing world can cite massive state spending by Americans and Europeans to justify kick-starting their own economies, including by protectionist measures.All that said, worries about global trade will be secondary in 2009 to other more pressing domestic questions. The risk of a protectionist wave is a longer-term problem.

Where is the oil price going in 2009, and what will be the political and social consequences?

Bremmer - In July, oil hit $147 per barrel. We got “drill baby drill” and a sense of urgency to investment in alternative fuels. Oil has now fallen to $44 per barrel. That undermines much of the political momentum behind both. It’s also bad news for oil producing states like Venezuela that haven’t handled their account balances very well. It adds pressure on a Russian government that finds itself drawing heavily on the revenue amassed as reserves over the past six years. So-called stabilization funds may yet be used for actual “stabilization”. High inflation, unemployment and subsidy spending leave Iran in less-than-ideal economic shape, but its government has done a much better job than Venezuela of maintaining oil output levels. But we can’t remain bullish on lower prices indefinitely. We see a lack of investment in infrastructure and exploitation in many countries. There are continuing geopolitical tensions in the Persian Gulf, the Caspian, West Africa, and other hotspots. Output is likely to fall over the longer term in Mexico, Venezuela, Russia, and elsewhere.

Roubini - In the short run, the demand destruction in the global demand for oil will keep prices low and hurt a bunch of unstable petro-states. These petro-states should become less aggressive facing fiscal and financial pressures; but some may be tempted to convert the domestic anger triggered by economic malaise into an aggressive foreign policy stance. Over the medium term, oil prices will sharply rise again once the global economy recovers. The return to potential growth will imply rapidly rising demand from urbanizing and industrializing China, India and other emerging markets. Meanwhile, the supply response will be much slower as low prices in the short-run lead to less investment in new capacity. In addition, as peak oil factors take hold, unstable petro-states won’t invest enough in new capacity and even Middle East states will decide it is better to keep more of the limited and finite reserves of oil in the ground for future generations. This suggests the importance — for oil importing countries — to invest in alternative and renewable technologies as a new oil shock looms.

Has the global financial crisis disproved the belief that free markets generally create optimal results and that state intervention in the economy should be kept to a minimum?

Bremmer – Yes, but it hasn’t proven that large-scale state intervention is an absolute good either. Intelligent moderation is good for both open markets and government investment, but we’re likely to see the pendulum swing way too far this year in the “state intervention” direction. Let’s also remember that many of the bad bets on markets were actually made via sovereign wealth funds—excess pools of capital owned and managed by governments that were created to maximize state return on investment—and, in some cases, political influence.

Roubini – This is not a final crisis of capitalism and market economies. To paraphrase Churchill, market oriented capitalism is the worst economic system apart from the alternative. But the specific brand of Anglo-Saxon, laissez faire, wild-west, free market fundamentalism without prudential supervision and regulation of financial systems has been debunked. Central banks that are usually the lenders of last resort have become the lenders of first and only resort. And the new Keynesian Finance ministries have become the spenders of first and only resort, as private demand – consumption, residential investment, capex spending – is plunging. In financial markets, the laissez faire approach of self-regulation implied no regulation; the reliance on market discipline failed in the frenzy of euphoria and irrational exuberance in good times. Internal risk models failed as the risk takers had the upper hand over the risk managers, and ratings agencies had massive conflicts of interest through being paid by those whom they were supposed to rate. Light-touch regulation failed miserably, as did the reliance on teeth-less principles rather than rules. While the risk that the pendulum may swing too much from self-regulation to excessive regulation is possible, a greater reliance on simple rules and tighter regulation and supervision is necessary to prevent another very costly boom and bust cycle. The financial, fiscal and economic costs of this crisis are so severe that failing to prevent the next virulent one will lead to a severe backlash against globalization, free trade and free capital flows.

The crisis has seen a fundamental reappraisal of risk and a general flight from risky assets. What does this mean for asset prices and markets in countries seen as having high levels of political risk — will they be disproportionally hit?

Bremmer – Some will, yes, though it won’t be clear until the markets start to rebound. Right now everybody’s getting hit because no one is lending. When the markets recover, everyone will recognize the fundamentally unstable places. They’ll be the ones that don’t bounce.

Roubini – Usually the combination of economic and financial vulnerabilities with political risk leads to extreme risk aversion of domestic and foreign investors and over-reaction of asset markets. The financial crises in emerging markets in the 1994-2003 period were all associated with rising political risk (populist governments, political uncertainty, domestic conflict) that led to lower policy credibility and greater trigger-happy behavior from investors.

We’ve seen your assessment of the top risks in 2009. What’s your best guess of the top risks in 2010?

Roubini – The top risk for 2010 is that the painful U-shaped global recession turns into a more severe multi-year L-shaped global stag-deflation. The key factor in determining whether the current U (a mild V-shaped recession is now out of the window) turns into an L is the policy response in the US and abroad. While US authorities seem to get it and are now pursuing aggressive policy responses, the rest of the world is reacting and responding much slower. In the Eurozone, the ECB is behind the curve. The fiscal stimulus is likely to be weak and dealing with the cross-border banking crisis requires international burden sharing of the fiscal costs of bailouts. In emerging markets, monetary response is constrained by high inflation, foreign currency liabilities and the risk of currency crises. The fiscal stimulus is constrained – in some cases – by high fiscal deficits and debt. Financial sector rescues also risk being botched, leading – like Japan in the 1990s – to zombie banks and zombie corporations and households whose debts are not properly restructured, thus exacerbating the credit crunch, the debt deflation and the risk of widespread defaults. Given the global glut of capacity from the overinvestment by China and Asian economies, global deflationary pressures could take hold leading to more persistent and virulent deflationary pressures in the global economy.

Bremmer - From the perspective of global politics, Iraq will likely become more dangerous as noticeably fewer US troops on the ground increase the incentives for the country’s various sects, tribes, and factions to compete for Iraq’s wealth and for control of government—both in Baghdad and in the provinces. China could turn toward deeper protectionism as the political leadership begins to respond to growing public demand in China for rules that favor Chinese firms at the expense of their foreign competitors. Security in Pakistan, Afghanistan, and India will likely remain a front-burner issue.

30 comments

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This is a huge amount of speculation, with little or no relation to the trough fundamental problem.This is the big picture; people in the US & UK have borrowed more money from foreigners than they can afford and now cannot pay the money back!The US & UK have two options; bankruptcy or inflation.Since bankruptcy is not a realistic option, they will choose inflation!Massive inflation simply must happen to restore balance!The only thing that governments can do is to delay the inevitable.The worst case scenario is that the current mess continues for many years to come before the inevitable inflation event takes place.Much better is to bite the bullet right now! Crash the Dollar & Pound in order to arrive to a more legitimate value.This will hurt a lot! But a lot less than to muddle ahead like this for a decade before thesame event takes place anyway!

Posted by Greenspan's Dog | Report as abusive

The comments by both Mr. Roubini and Mr. Bremmer indicate a clear understanding of the ebb and flow of the various forces that are impacting world economics however we are left incredulous in both of the observers time frame perspectives as to the possible harshness and length of the World Wide Depression that is now well underway. Most of what we have in the way of global frameworks for wealth development and goods allocation is a leaky fleet of ships crafted by an ‘entitled’ group of draftsmen to whom the design was secondary to the wants of the specific individuals who wished to float the vessels.The use of a sustained and comprehensive study of the history of global markets and the sound and consistent application logic and reason are the best tools for applying to any ‘predictions’. That one detects little in the way of such ‘backgrounding’ in the statements made gives pause to serious acceptance of their dual missives on the somewhat superficial questions posed.The long formulary that we arrive at when taking all such matters into the global economic purview is that we are now moving into unknown waters of a depth not to be ‘plumbed’ nor easily ‘fathomed’ by any prior instruments, and so we must, as needs be given consideration by thoughtful men, expect the least desirable of outcomes in what is truly a dangerously disintegrating world scenario.This observer is quite confident in saying that the likelihood of any ‘return’ to prior economic equilibrium and vague political stability is very doubtful and in any event such a ‘return’ is an even less than desirable situation given the rising of large scale awareness by the worlds population of the grosser inequities that the past two centuries have fostered.A fair prediction is that we are most certainly all about to become the victims of the general folly of a species that has reproduced and consumed at a far faster pace than its intellectual and social development has progressed. World shattering event horizons loom larger than most would willingly acknowledge and it is yet to be seen whether the collective conscious of mankind will be able to exert enough pressure on the miniscule group of the ‘entitled’ so as to force them to restructure the design of economic policies that currently are but keel boards in suspect dry-docks.My best calculation is but a prophesy of mass pain and prolonged global suffering that will traverse thirty years or more and encompass larger political events that will likely be subsumed by its overall trajectory and multiple consequences.The only nation that seems partially capable of weathering the coming chaos in a manner that will maintain its integrity is Canada …. and that solely by way of blind good fortune in the way of its resources, resolve and somewhat marginal external needs.

Posted by Barrie O. Ward The Canadian Geezer | Report as abusive

It seems to me that the financial institutions have caused the “credit crunch” as it is called. They pushed the public to its limit using their financial advisors. They squeezed every last cent out of their earnings. Expensive cars, holidays and houses were all easy to come by, leaving them with little extra cash.Now the investors again decided to push up the price of fuel by speculating. Now the bubble started to burst.An increase in fuel pushed up the cost of food and all the other goods. The hard pressed public now very cash strapped. They stopped paying their bonds cars and instalments.The banks and financial institutions had no cash flow to satisfy their investors. They started to fold. After all they had not followed good banking or credit practice.The government poured money into the banks as a rescue package, but this could not help as people were now losing their jobs. They stopped spending and one company after the other started to fold.In other words they have pulled the bricks out from the bottom of the tower and it will crumble.We are heading for a major depression if nothing is done soon.The solution as I see it is to create jobs. Build a few aircraft carriers. Put the wind turbines up. Rectify the rail system and build houses etc.The money is there after all, it’s been handed out to the banks. The shrewd investors, who have made the killing in the financial field and invested offshore, will come back and invest.By creating jobs one increases the tax base and this is the only way to get the money back with interest.THE BANKS WILL NOT LEND MONEY UNLES THY HAVE A SURE WAY OF GETTING IT BACK WITH INTREST.

Posted by Lawrence Taylor | Report as abusive

One effect I see coming down the pipe will be the nationalization of the U.S. monetary supply. We are witnessing the effects of a private central bank that is making very major policy decisions in the U.S. economy. The math says that we can not run deficits, cut taxes, run two wars and not exports products.We have allowed free-trade to gut the U.S. manufacturing capabilities and tried to sell the public on a “service-based economy”. For some reason I don’t see how we run a debt-based monetary system and have a flourishing middle class with a functioning democracy. We are already seeing the outrage on bailing out banks that had a major hand in creating the crisis while at the same time not giving the citizens any real help other than providing credit (ie: more debt). The consumer is tapped out and losing their job. The is not a stable situation. The Greenback might make another appearance in my opinion.I believe we will see an domestic and international currency come out of this situation and there will be more focus on trade balance. I would like us to focus on helping nations build their middle-class so they can buy American made goods.

The pundits are making hay while the sun shines.They talk before an event when no-one listens.They talk during it, from all corners and angles.They talk after it when they are long forgotten.The world however finds it’s own way.

Simple living and high thinking

The best insight on all of this AND the most honest can be found atwww.theautomaticearth.blogspot.com websight. Brilliant.It seems few in the mainstream are listening to or heeding the advice of the wisest of the wise.As for myself I can only suggest to ‘simplify, simplify, simplify’ and ‘live simply so that other’s may simply live’ ….thoreau and gandhi had the right idea and I think that would be a good start for all of us.

Posted by jan | Report as abusive

The concept of economic growth appears to have hit the wall.If a global growth rate of 3% per year over the next 10 years was required to sustain the viability of the capitalist economy (it makes little sense to investors to invest for 0 return) and support of the population then the global economy would need to expand by 40-50% over the next 10 years. In my opinion, the finite limits on natural resources of the Earth makes this unlikely to be achieved.If the age of growth economy (17th century – 21st century) is coming to an end then it means that a new form of economics is required that will sustain living on the planet.Without digressing into analysis, my conclusion is that a global form of market socialism is the path of the future. In this scenario, the control of economic activity is a mix of government controlled economy ( banks, health, public transport, education and security forming the core sectors) and the private sector economy. I would say that the government controlled sector in the order of 50-60% of the total economy. This sector would not be driven by growth policies but rather economic sustainability.The remaining 40% of the economy should be a free market as possible to allow for the developmet of new ideas and products and privide incentive and reward to individuals for their contribution to society.The only problem with the above scenario is that power corrupts and absolute power corrupts absolutely. With the decline of ethics and morality in government, unforunately the power hungry will seek to gain control of these levers of society so that they can gain access to the opulent luxuries of life…There is no hope. In the long run, we are all dead.

Posted by gregory | Report as abusive

This article is a waste of time – we do not see anything new and guys position is quite clear – no changes as in the past 25 years. They are talking about possible disturbances in Russia, Ukraine and other counties. I did not see any predictions on UK, EU, Canada and Japan – which is what everyone wants to know. It is a shame that such interview with “experts” was publish. Not sure whom to blame – newspaper or “experts”.

Posted by Alex | Report as abusive

I frightfully must concur with the poster Gregory who has concluded his ramble with “There is no hope. In the long run, we are all dead.” for that indeed is the conclusion/termination of ones life cycle.For those who want to maintain some semblance of stability for another generation may I suggest we not get caught up in the fallacies of future prognostication (Certainly an acknowledged reality) then I suggest we harken to what Jan has posted ’simplify, simplify, simplify’ .

Posted by George Stanley Liebowitz | Report as abusive

So many “isms”. Capitalism, socialism, globalism….in the end all of the IDEOLOGIES form around sets of PRINCIPLES that allow a large number of people to be convinced of their inherent worthiness. It is when the “isms” are corrupted from within by that ever-present small percentage of ruthless people whose only ethos is to win, that all “isms” turn into simple piracy. When the technocrats, politicians and pundits can no longer recognize the difference between economic systems and crime, a difficult period of readjustment is inevitable. Ironically the same ruthless people that bring societies and civilizations to their knees are no more able to protect themselves against the inevitable historical fallout of their short-sighted, destabilizing criminality than the lowliest peasant.

Posted by Jonathan Cole | Report as abusive

And I thought our economic disaster was caused by greed, corruption and incompetence at the highest levels of U.S. business and government; exacerbated by a -$4.8t BOP, squandering our manufacturing base and offshoring 2.5m jobs. How do these “experts” reconcile those facts…?

Posted by RFL | Report as abusive

I would feel better if I knew definitively that somebody is not intentionally trying to cause poverty. Banks assumed a lot of debt – both good and bad – since this is what banks do. So those that stand to gain the most from economic collapse are banks. We say that we are causing inflation with all of our spending. As far as I can tell nearly all of our spending has been going to banks. Then average people have to flip the bill. So really we are just pushing people into poverty while not creating tangible benefit. There is always talk about the government spending money everywhere. I sure have not seen any of this money. I do not have more cash in my wallet. I just know that in the future somebody will expect me to pay more of the national debt. Things seem kind of screwed up.

Posted by Don | Report as abusive

The human spirit will suprise everybody. Remember that in the New York subway after 9/11, people of all races looked into each others eyes without fear. The walls came down for a few days. It was just a “hint” of the possibilities that lie beyond the horizon of our lonely consumer culture. Consumer products do not satisfy the longing we have to experience life through our human hearts. Slowly we will pay back the debt we owe to others and find something else to do with our time because we don’t want to buy things anymore. We might start to invite people over and share a hot pot of tea. This time last year we would have purchased the theater tickets to watch the play that is now our existence. It cost only one tea bag and an open heart to give and receive human comfort. When our children start to hound us for the latest tv product we will just look to our guests and laugh with the mutual understanding of an empty pocket. Maybe the laughter and human interaction will be the product our children are really longing for. To take their minds off “it”(advertising/manipulation) we might ask them to tell us what they learned in school that day.We will start over and deal with it. The violence that political leaders and writers fear doesn’t have to erupt. Instead of standing in a soup line we will order over the internet and have it delivered. We can sit at our computers and go to “on line college” without leaving the house or spending a dime. How is that? The human spirit and goodwill of others will triumpt.As we watch the world news at night and whitness the luxery items being consumed by people from other parts of the world, we won’t envy them because we know all about the payments that come with the object. Slowly, as we are releived of the stress and burden of our debt, a new culture will emerge. We will be the educated poor. If we can’t afford prescription drugs then compassionate chicken soup will have to do.Hey! We can turn it into a reality T.V.show and boost our savings rate another 2 percent.Nothing to fear. We know what is on the horizon. That is why we elected Obama. He is our president and our therapist. This won’t be Germany. We will use the know how of “Wall Mart” to distribute whatever it is we need to sustain ourselves on a physical level and grow spiritually through reaching out to each other because we will all go broke together. For now.

Posted by maureen mergen | Report as abusive

Jobs,createjobes. I beleave astart has to be created by the government.By creating jobes you will bring about spending and confidence.In turn this will bring investment back.Jobs for everyone are the only way to save the economy.Jobs create jobs.I beleave the government has to create them .Working people spend money they earn. They buy cars etc. They bring about investment,because people with money like to have a shear of the money that workers earn.This in simple terms is the only way to turn the economy around. We have to build ships,power stations,rhodes,plains,houses,water plants,etc.The rest of the world is not going to save England.After all the english can come out on top when the chips are down.This is Englands,payn and only England can put it wright.

Posted by L .Taylor | Report as abusive

Without a Return to A GOLD Standard the pain of this Financial Crisis will be on-going for years to come. This is all about having a standard for the determination – measurment of Value. Without such a means the World will continue to suffer a Financial Malaise even of the current bandaids look like they are working for a time.

Posted by John Strauss | Report as abusive

“Keep it simple.” The technicalities of the language in the above article were nearly too much to decipher. I like simple language. We have an economic crisis probably due to many factors, the greatest factor, it seems to me is greed and exploitation of others, which go hand in hand.Simplifying our lives, particularly in our hyper-consumer based U.S., would be incredibly beneficial. Too many Americans, I being one, can do without so much crap that we consume. I drive a used 1990 car, don’t have a TV, wear perfectly fine (and some “designer”)clothes from thrift stores, eat a grain based diet, and enjoy fresh air and the outdoors alot. As ridiculous as this sounds, fresh air on a daily basis, even in winter, can really cleanse the mind. Seems the U.S.’s mindset since the Industrial Revolution is all about exploiting others for our gain. Now, because of our long-term short-sightedness since teh 1880′s at least, we are in quite a severe downturn for the forseable future.I chat occassionaly with a man in his 80′s, born before the Great Depression. Not being an economist though, he predicts this Recession will last a good ten years. I cannot disagree with him as I have not lived long enough to been through many wars, economic upheavals, and the Great Depression, as he has. Seems to me, simplifying one’s life, doing without junk and crap we don’t need, and enjoying nature is a fine, daily remedy to the world’s woes. Also, going out to local free events helps soothe the mind.In short, keep your lives simple, reduce expenses dramatically, prepare for a very long-term recession and then inflation, learn to live with much less, go outdoors often and enjoy nature!Cheers – from beleagured-but-brought-upon-ourselves-sh ort-sighted-former hyper-consumer-U.S. citizen!Really, go outdoors alot – and change your diet to a grain based one!

Posted by renee-USA | Report as abusive

Jan’s post “…. ‘live simply so that other’s may simply live’ ….thoreau and gandhi had the right idea and I think that would be a good start for all of us.” is the right thing to do. I tried to practice just that. But even my wife wouldn’t allow me to leave the thermostat low. Now try to tell the Americans to forfeit their entitlement.This brings me to the post by Gregory. The earth, our only home, simply cannot sustain growth economy. We all need to consume LESS not more. Do we, everyone on earth, have the collective wisdom to see this? HxLL NO.Never mind what the pundits says. If they were so good, why then did they not fix the problem before it happened?Frightfully I concur with Gregory – we’re all dead! Funny thing is – the earth doesn’t care.

Posted by Pu, WeiTa | Report as abusive

My question is simple, has Obama hired guys like Roubinias advisors. He obviously saw it coming and seems to have a good sense of the problem and how to fix it.

Posted by tefe | Report as abusive

First in the hope that Roubini reads this, I want to offer my heartfelt thanks for his forecast as it prompted me move into cash before the crisis. Second, may I suggest that in order to compliment the mix of economics and politics into the forecasting stew we should add a healthy portion of environmental analysis. For intance, with all the nuclear warheads going off in WWIII we may find that the influence of greenhouse gas emissions to have been of relatively minor significance.

Posted by Danny Brashear | Report as abusive

Davos 2009 Conference Shows The World At An Economic Crossroads……http://wcgfairfield.blogspot .com/2009/01/davos-2009-conference-shows -world-at.html

Posted by Anonymous | Report as abusive

Methinks I agree with the gurus and hope we recover from this debacle. Yes Bank Reo the greenback should be back { you tube zeitgeist}. I wish to be more like the Canuck Geezer as beer is the most important commodity. Being unemployed now for 9 months has cut into my consumption and I’ll probably have to learn the brewing trade for my next career after thirty years in ihe land survey business.

Posted by So Cal Surveyor | Report as abusive

The Canadian Geezer has it about right we are into this for about a quarter century and will likely see major upheavals in all corners of the globe. Hope I and my children survive the mess that has been served up by corporate greed. I am seriously looking into relocating to Canada as from what we have been studying it does seem to be the most stable of the western democracies I just wish it was not so cold!

Posted by Charles H. Townsend | Report as abusive

Who in the world would have thought it would come down to this just a couple of years ago when everything seemed to be constantly rising. I and my husband saved and invested our money through the so-called ‘Safe’ brokerages. What a disaster as we have lost almost 65% of our twenty years of combined retirement investments.We won’t be going to Canada even if we could stand the cold weather because we just can’t afford to go anywhere and now to top it off our financial services jobs are also looking quite a bit less secure. We need some real help soon with rising costs and expenses.

Posted by Michelle Fordham | Report as abusive

I have been following the comments and conclusions of Nouriel Roubini for three years. His comments of Feb 2008 spurred me to action – getting all of my assets out of the markets, which I did in the spring of 2008. To say I’m grateful would be an understatement. There are really tough times ahead and the way forward will be difficult, no doubt with potential danger. Calamaties, financial or otherwise, can influence normal people to do abnormal things.The IMF just revised their 2009 global growth forecast two days ago – now .5%. Some three months ago they were forecasting global growth of 2.2% with further financial losses of $2.2 trillion. Roubini’s numbers are negative global growth for 2009 with further financial losses of $3.6 trillion – guess who’s advice I’m taking. :)

Posted by RMG | Report as abusive

All you guys are thanking Roubini for getting you out of the market. That’s pretty funny… You really should be checking out Peter Schiff. He could have told you what to do in 2008 back in 2006. I can’t believe these guys are still talking deflation in 2010. You guys only think demand-driven “price inflation.” Central banking “printing press inflation” will put incredible pressure on the dollar and it will slide after two years of trillion dollar deficits and no more takers for US debt.

Posted by Eric Smithson | Report as abusive

The present financial crisis requires a co-ordinated response on a global scale.The real risk to the world economy is the temptation to revert to protectionism by each individual country in order to solve their own domestic problems.ie job losses etc.In the short term this policy will help to stabilise individual country’s economies, however it will be like a domino effect as each country turns to protectionism.The result will be a more painful and drawn out economic recovery that will drag on for years and create untold misery.We have now entered a window were we have a chance to work together for once on a global scale to fix financial systems world wide.The outcome will drive a faster recovery and restore vital confidence in the financial system world wide.The other alternative is to continue to work as individuals and not take into account the effects further on down the track.Economic stimulus can aid recovery however the risk is that in about 1 to 2 years we will enter a dangerous point were the economic stimulus causes hyper inflation.Once hyper inflation takes over we will all be in trouble.We have a chance to fix this problem now, lets work together as a global village.

Posted by Greg | Report as abusive

I do not see any sign of optimism in Roubini and Brenner’s remarks. Now we seem to be in a stage where Decline is full- steam ahead. The Housing market, the Credit markets, the Equities markets, all are problematic. Americans need to save more, but we are told that at this time they need to spend more also. America’s trade- balance and foreign- debt weaken it, but it seems there are no new American products and productivity which are going to right this. All signs are that this is going to go on, and even get worse for a long time.I personally have been a big fool in all of this, and have hung on to my few assets and watch them decline. Now I am waiting for Inflation to do the rest. I hope I am a little wiser ahead. But neither for myself as an individual or for the United States, and in fact the world as a whole do I see a very bright near- future.

Posted by Shalom Freedman | Report as abusive

Interesting that nobody asks Nouriel’s PR agent to show where he predicted the credit market collapse which is what shut off funding for housing. He had been saying since 2004 that the rash was going to be driven by trade imbalances ( http://pages.stern.nyu.edu/~nroubini/pap ers/Roubini-Setser-US-External-Imbalance s.pdf ) and he even said that housing was not going to crash but fizzle and only then in the formerly fast appreciating markets. He didn’t call it, or I should say, he called it for all the wrong reasons and annually until he got it right. Do a google news search for 2004, 2005, 2006 and see for yourself. A FALSE CLAIM from a self promoter who pays for a PR firm to promote his claims.

Posted by heathershap | Report as abusive

MY SEVEN STEPS TO SAVING AMERICATaking toxic waste (In this case loans that are never going to be paid) and moving that waste to another county (in this case the US Treasury), then shipping it back 5 years later to the county it came from miraculously making potable soil is irresponsible dreaming!STEP 1 (STOP FEEDING THE LIES)The first thing that the President can do is stop the phoney-baloney that the Treasury Secretary, Federal Reserve Chairman, and people of the ilk of Robert Rubin, and the Media Like the New York Times are serving up to the public. ALL OF IT to date is complete and utter hogwash. The public can smell a rotten egg and if Obama doesn\’t come to terms with that fact quickly, then he will not spend more than one short term in office.STEP 2 (BECOME REALISTIC)All of this nonsense about the Government taking the failed debts of the banks \”temporarily\” to be repaid later is an effort to hide the fact that the Plutocracy of America is more important than the rest of the American People and as they all run for cover the rest of us will be left holding nothing.STEP 3 (STOP PRINTING MONEY)As the Goverment continues to print new currency at an alarming rate (that I might add is no longer reported due to M3 no longer being published), we risk Weimarian inflation. We will be carrying 100 Billion US Dollar Notes in the next 5 years at the current rate of inflationary dollar creation.STEP 4(REVITALIZE MODERN FED.RES.GOLD CERT. RATIO)There is no solution to the current financial problem that we face, other than creating \”The Revitalized and Modernized Federal Reserve Gold Certificate Ratio\” as per Sinclair.STEP 5 (HIRE RON PAUL AS SPECIAL ADVISER)Obama should also make Ron Paul his Special Advisor to work with Volker.STEP 6 TELL THE ENTIRE COUNTRY THE ABOVE AND EXPLAIN TO THEM WHY IT IS NECESSARY.Let the Bankers and the Motor companies and any other company that has failed, to fail. Then you will have the trust of the people and other Nations.STEP 7 (USE THE BIBLE AS YOUR GUIDE)That’s my solution and it will work if Obama tries it.

Posted by McGregor | Report as abusive