Nouriel Roubini's Global EconoMonitor

David Ignatius: The Death of ‘Rational Man’

From the Washington Post:

What allowed some people to see the financial crash coming while so many others missed its gathering force? I put that question recently to Nouriel Roubini, who has come to be known as “Dr. Doom” because of his insistent warnings starting in 2006 that we were heading into a global firestorm.

Roubini gave two kinds of answers. The first involves standard number-crunching of the sort that economists routinely do — and that Roubini just did better and sooner. It’s his second answer that’s more interesting, because it goes to the heart of what we should take away from this crisis: Roubini decided to discard the assumption of market rationality that underlies most economics and to embrace the psychological insights of what’s known as “behavioral economics.”

First, the standard analytical explanation: Roubini said that he studied a chart in economist Robert J. Shiller’s book “Irrational Exuberance.” It showed that U.S. housing prices, adjusted for inflation, had remained essentially flat for a century, until the mid-1990s, when they began to shoot up. What’s more, Roubini saw that the most recent housing correction in the late 1980s had a severe effect on the financial system — leading ultimately to the collapse of the savings and loan industry.

So Roubini knew two things: Housing prices wouldn’t keep going up forever, and when they went down, they would take a big piece of the financial system with them. From then on, it was a matter of watching the data.

But everyone else had those same numbers. Why did Roubini act? The answer is that he decided to trust his gut, which told him there was trouble ahead, rather than Wall Street’s “wisdom of the crowd,” which — as reflected in stock prices — said everything was rosy. He concluded that the markets were not pricing in the degree of risk that was actually present in housing.

“The rational man theory of economics has not worked,” Roubini said last month at a session of the World Economic Forum at Davos. That’s why he and other prominent economists are paying more attention to behavioral economics, which starts from the premise that economic decisions, like other aspects of human behavior, are influenced by irrational psychological factors.

The most compelling rebuttal of the rational model, paradoxically, was delivered by the ultimate rationalist, Alan Greenspan. “I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such that they were best capable of protecting their own shareholders,” the former Fed chairman told Congress last October.

That’s why Greenspan didn’t see it coming, argues Daniel Kahneman, a Princeton professor who is often described as the father of behavioral economics. His rational-actor model wouldn’t let him.

Let me put in a plug here for the godfather of behavioral economics, John Maynard Keynes. His 1936 “General Theory” is often interpreted simplistically as a call for fixing recessions by boosting demand with government spending. But at a deeper level, Keynes was analyzing the role of psychological factors, such as greed and fear, in economic decisions. He understood that markets freeze when people panic and start hoarding cash. (“Extreme liquidity preference,” he called it.) Conversely, economies start to roar when investors feel a surge of what Keynes called “animal spirits.”

One of the most powerful ideas I heard at Davos was the idea of “pre-mortem” analysis, which was first proposed by psychologist Gary Klein and has been taken up by Kahneman.

A pre-mortem analysis can provide a real “stress test” to conventional thinking. Let’s say that a company or government agency has decided on a plan of action. But before implementing it, the boss asks people to assume that five years from now, the plan has failed — and then to write a brief explanation of why it didn’t work. This approach stands a chance of bringing to the surface problems that the decision makers had overlooked — the “black swans,” to use former trader Nassim Nicholas Taleb’s phrase, that people assumed wouldn’t happen in the near future because they hadn’t occurred in the recent past.

One more take-away from this year’s Davos forum was a Japanese proverb cited by one speaker: “An inch ahead is darkness.” Recognizing the inherent unpredictability of economic life — the darkness that’s just ahead — should make us wary. But it can also make us smart.

64 Responses to “David Ignatius: The Death of ‘Rational Man’”

GuestFebruary 13th, 2009 at 11:24 am

Ah, tutterfrut. A zip-a-dee-doo-dah, to you! Don’t feel so bad, you’re first in my heart. :^) Be Mine! Happy Valentine’s Day.

GuestFebruary 14th, 2009 at 8:22 am

Chignos, Thank you for your well-reasoned and logical position. I was unsure on what to do until an intellectual heavyweight like you weighed in.

IncognitoFebruary 13th, 2009 at 7:47 am

I posted this in the previous thread.————————————————————————————–There are two ways to expand an economy:1- Expansion via value addition. That is, we need technological improvement to expand. In this way, we improve the purchasing power of the money rather than its quantity.2- Expansion via credit creation. We increase the quantity of the money to expand. In this way, there will be a temporary appreciation of the assets. We call this appreciation bubble.In essence, humans first discovered production, then, printed money to exchange the goods and services they produced. This is the case of the option (1) above. Option (2) is equivalent to printing money, then, producing the goods and services. That is, with credit, we spend the future before it’s due. Thus, if credit is used for areas where value addition is low bubbles burst and we go into financial crisis. Moreover, excessive leverage provides some privileged investors ways to gain from risky investments as they can distort prices to their advantage due to the artificially improved loss tolerance (i.e. they can follow doubling strategies more easily). This, in turn, causes wealth concentration in the long run and reduces monetary circulation. Declining monetary circulation causes credit risk to increase as it did through the crisis.As a result, the resolution of the current crisis in the short run should have been based on the debt elimination since the equilibrium between the borrowers and the lenders is broken. This is because US didn’t finance its growth based on the first option above. Now, not only the current administration is disregarding the aforementioned fact but also following the same risky option; which is (2). Thus, we will see that the Keynesian approach followed will fail as the system is not adequately structured to pay its debt back. The problem with Keynes’s approach is that is disregards the credit risk. There is a naïve assumption based on the fact that the stimulus will improve the value addition of the system beyond its cost of borrowing. This is absurd! There is no way that, a borrowing amount of 2 trillion dollars will not affect the interest rate and inflation.

GuestFebruary 13th, 2009 at 11:33 am

Thanks for the re-post. I was going to send it on if you didn’t. Good economic truths here. In the end, the economy always prevails. And, hopefully this time round, the people will pick up the valuable pieces and not Wall Street and foreign operators in the know who picked up “blue-chip” and “gilt-edged” securities for a fraction of their real value in the Crash of 1929.

thimmappa nayakaFebruary 13th, 2009 at 8:14 am

Those hoarding cash have a small window before they release the cash and get it flowing. Also the insolvent banks are a bottleneck/block to get this cash flowing.If hoarded cash is not released soon, US govt. has no choice but to print more cash and cash holders will suffer. Governments must first try fear of inflation and then inflation itself to get money flowing.

GuestFebruary 13th, 2009 at 8:20 am

Prof. Roubini is obviously a very smart guy and honest too and I sure would feel in better hands if he was our treasury sec. however the one guy who saw this coming before anyone who has the most detailed historical explanation as to why we’re here and has the best mind and solution for creating a more prosperous and fair economy is Michael Hudson. The guys an economic genius and he gets almost no attention- after reading most of his articles and interviews he’s seems to be the one with the greatest vision and insight as to how to create a healthy economy and why this one is in ruins- but few listen to him or know of him.

CFebruary 13th, 2009 at 10:55 am

Thanks for mentioning Michael Hudson. I just checked out his web site and he has a lot of interesting articles. Not being in finance or economics, I don’t know who many of the good economists are, aside from the Professor who I stumbled upon some months ago.

Pecos BankerFebruary 15th, 2009 at 5:10 am

Pure ideology (Michael Hudson). Read Antal Fekete–much more substantive. See his latest paper at Warning, there is some simple mathematics in his paper. Not suitable for ideologues.

Juan DelmastroFebruary 16th, 2009 at 12:03 pm

Just discovered Michael Hudson, already read some articles and looks pretty much fair. Its good to have more independent thinkers out there balancing corporate media, and investment banking’s stratagema.Of course there is no “single best” economist who saw this coming. We have around Mr. Roubini, Mr. Hudson from University of Missouri, Kansas City (UMKC).And I would like to propose another “lighting bolt visionary” Prof. Ravi Batra from Southern Methodist University Dallas, TX. Who also saw this crisis coming.Early on in his published book “The New Golden Age” (Apr 2008), he said:

“I predicted that economic chaos would begin in 2007 with a housing meltdown in the United States, followed by a banking crisis and share price declines in 2008 and 2009. I now foresee that this crisis would last at least till 2010, and possibly longer. This is because conventional economists still do not understand the nasty economic effects of the wage-productivity gap, which has grown enormously all over the world. If the doctor does not diagnose the sickness properly, the patient has to suffer for a long time. That is why I am afraid the global financial debacle will turn into a steep recession and be the worst since the Great Depression, even worse than the painful slump of 1980-1982 that afflicted the whole world”.

He says also in his website (

“Uncle Sam, no longer rich but in desperate need of incoming largesse, has become the largest debtor in the world, but since the debt is not in foreign currency, its ill effects would take time to erupt. Foreign debt has already destroyed seemingly strong economies—Thailand, Malaysia, Indonesia, South Korea, the Philippines, and Brazil among others, whereas obvious laggards such as Mexico and Russia are simply gasping for breath. The United States is still standing tall despite its mountain of debt, but since its liabilities are not in terms of a foreign currency, it will be the last domino to fall. The country doesn’t need to raise interest rates to attract foreign exchange, which is what is killing the other debtors”.

GuestFebruary 13th, 2009 at 8:56 am

re: Alan Greenspan. “I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such that they were best capable of protecting their own shareholders,” the former Fed chairman told Congress last October.”Gotta wonder how much of that belief as possible because Greenspan was an only child.Anyone with sibilings realizes your sibling will act in their best interest – which may not be in the best interest of the family (ex. will sneak into the kitchen and eat the desert Mom was saving for everyone after dinner or whatever).As Buffet likes to say, options are a one way ticket …

GuestFebruary 13th, 2009 at 10:39 am

Yes, every bank robber has his own self-interest at heart, whether it be Robert Rubin or Willie Sutton.It is estimated that Willie Sutton stole perhaps $2 million in his career, and spent more than half his adult life in prison. My estimate is that Goldman Sachs has stolen $2 trillion and has spent its entire long life wallowing in power, feasting at an epicurean banquet and swaggering around in a “chinchilla robe of sybaritic lavishness.”And just as the Goldman Gang is an accomplished robber of the public purse, so was Sutton an accomplished bank robber. But he didn’t mug old ladies to get their savings while the stupid sheeple cheered him on for eliminating “hoarders.” No, Sutton was of better stuff! He never robbed a bank when a woman screamed or a baby cried.And just as Goldman and Wall Street banksters have been “forced” to live on handouts, er, bailouts, so for a while did Willie. After a series of decisions by the U.S. Supreme Court led to Sutton’s release on Christmas Eve in 1969 from Attica State Prison, he was in ill health and had to live on bailout, er, welfare payments.And true to gangster/bankster form, once a free man, Willie spoke about prison reform and consulted with banks on anti-robbery techniques, just as Goldiman is now consulting with Congress on bank regulatory reform and “stimulus.” What ironic displays of pure chutzpah!Never under estimate the stupidity of the people and their elected representatives. For, as John Dryden said in 1682, “They who possess the prince possess the laws.”

Guest, alsoFebruary 13th, 2009 at 2:48 pm

Self interest rules.I have been a manufacturer’s rep (broker) for over 30 years, and have a perspective that people often find suprising when I first tell it to them.Very simply, I trust everybody….to act in their own self interest. Consequently, I am rarely disappointed and when I am, it is because I have stumbled across an altruist.I also believe that most of us prefer to be honest, prefer to do meaninful work, want to be liked and accepted by others.It is just that pesky “self-interest” thing that gets in our way, and it is sooo easy to rationalize our little exceptions to our “good” selves, ain’t it?

GuestFebruary 13th, 2009 at 3:28 pm

But doesn’t it still irk you when you are in a grocery store and most people park their carts and fat *sses right in the middle of the aisle blocking everyone else? And haven’t you noticed that when people come out of said grocery store with their cart full of groceries, they walk out without looking to see if a car is coming? They don’t realize (care?) that there are other people more than 12 inches beyound their nose or car bumper. I tell my kids, most people aren’t really very bright.

Guest, alsoFebruary 14th, 2009 at 9:02 am

But the subject is self interest, not intelligence.There is a good argument for enlightened self interest being one of the higher forms of intelligence, but they are, in my opinion, 2 different things. Self interest is instinctive, intelligence is acquired.

GuestFebruary 13th, 2009 at 8:56 am

“If hoarded cash is not released soon, US govt. has no choice but to print more cash and cash holders will suffer. Governments must first try fear of inflation and then inflation itself to get money flowing.”I am a hoarder of cash. I do not fear inflation because it won’t come quickly, there will be lots of signs, and inflation will offer opportunities for investment that are not available in the current fiscal environment. In addition, we will see a period of deflation before we see inflation. We won’t see real inflation in 2009.

GuestFebruary 13th, 2009 at 8:58 am

The Chinese are coming: Falling US home prices lure investors on home-buying tours.,0,3824490.story?track=rss-topicgallery..Because the authoritarian government has imposed controls limiting China’s exposure to international capital flows, the country has largely avoided the worst of the global financial crisis. Meanwhile, high-level incomes have continued to rise. China had the world’s fifth-largest population of millionaires in 2008 with 391,000, up 20 percent from the previous year, according to Boston Consulting Group.But Chinese with money in the bank have few good investment options at home. Real estate prices have cooled and stock prices peaked in October 2007 after a two-year boom that saw shares rise six-fold in value. After years in which foreign money poured into China to take advantage of the hot economy, economists estimate that tens of billions of dollars began leaving the country in the last three months of 2008 as Chinese investors began bargain-hunting.

GuestFebruary 13th, 2009 at 12:10 pm

They’ve been doing this for quite some time, even before the real estate crash. Arcadia High School, in Arcadia, California, a suburb of LA is 90% Chinese.

colm ryanFebruary 13th, 2009 at 9:03 am

Richard Duncan’s “The Dollar Crisis” , published in 2003 is another book explaining the real root cause behind the credit induced, global asset bubbles witnessed since the collapse of Breton Woods and the establishment of the “dollar standard”. The predictions of future (and certain) havoc for the global financial system are alarmingly accurate.Even today, amidst ongoing financial turmoil, I have yet to hear even one of the world’s political leaders or central bankers allude to the one root cause of this financial instability…the health of the global economy depends almost entirely on the US going steadily deeper into debt against it’s trading partners with NO inherent adjustment mechanism to prevent these huge trade imbalances.

TobyFebruary 13th, 2009 at 9:37 am

When you are into root causes:”In its physical dimensions the economy is an open subsystem of the earth ecosystem, which is finite, nongrowing, and materially closed. As the economic subsystem grows it incorporates an ever greater proportion of the total ecosystem into itself and must reach a limit at 100 percent, if not before. Therefore its growth is not sustainable. The term “sustainable growth” when applied to the economy is a bad oxymoron—self-contradictory as prose, and unevocative as poetry.”The basis for the fractional reserve system is continious growth(and debt) so there you go. Will not work!!Some more drastic theories about this is the Olduvai TheoryThe Olduvai Theory is an hypothesis put forward by Richard Duncan and revolves around the importance of electricity to civilisation.I do not buy into all of it but the connection energy and economics is interesting. don´t print energy, must be better…

Pecos BankerFebruary 15th, 2009 at 7:04 am

Toby,Are you sure this is the same Richard Duncan? In trying to follow up on his book, The Dollar Crisis, I googled on his name and found what appeared to be another Richard Duncan, an archeologist. Hard to believer they are the same person. “The Dollar Crisis” is excellent.

DonBFebruary 13th, 2009 at 9:06 am

Alan Greenspan: “I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such that they were best capable of protecting their own shareholders.”Greenspan had it almost correct, but tragically wrong. Self-interest was clearly at work. It was just the self-interests of bank management that were being protected, not the interests of shareholders. Bank boards of directors, in my view, are one of the main culprits in this mess. They allowed compensation methods to exist that favored current management over shareholders, as well as the long term health of their companies.Eventually we will dig our way out of this problem, with an unfair portion of the pain to be borne by taxpayers, many of whom have not yet been born. Boards of directors need to focus more on shareholders’ long term interests and less on managements’ short term interests. If this is not corrected, we will eventually find ourselves in a similar situation again.

MedicFebruary 13th, 2009 at 9:56 am

BTW – Ignatius is the best columnist the WP has. Nice to see you getting more props in the press Professor.

ptmFebruary 13th, 2009 at 10:00 am

JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICS – FLASH UPDATE – February 12, 2009 – Monthly Retail Sales Gain Due to Revisions and Inflation – January Retail Sales Bottom-Bounced at Low-Level Plateau – “Core” Retail Sales up 0.7% versus Official 1.0%Any stated reason for increased retail sales (1% or 0.7%) cannot refute that increased sales are below the rate of inflation. (We have yet to have month of “negative inflation.”)The seasonally-adjusted December 2008 trade deficit was $39.9 billion, in November, which is down from $57.2 billion in October (30% drop). For all of 2008, the deficit was $677.1 billion, down from $700.3 billion in 2007 (3.3% drop).Average price of imported oil declined to $49.93 per barrel in December, down from $66.72 in November. December crude oil imports were 10.3 million barrels per day compared to 8.7 million in November (16% seasonal increase). For the year, crude oil volume dropped from 3.69 billion barrels in 2007 to 3.59 billion barrels in 2008 (2.7%).

GuestFebruary 13th, 2009 at 11:51 am

WARNING: Contains BLS figures not adjusted for truth…U.S. Economy: Consumer Sentiment Approaches Lowest Since 1980Feb. 13 (Bloomberg) — Confidence among U.S. consumers approached its lowest level since 1980 this month after job losses mounted and the slide in home values deepened.The Reuters/University of Michigan preliminary index of consumer sentiment fell for the first time in three months, to 56.2. The gauge reached a low of 55.3 in November…Economists forecast the sentiment gauge would drop to 60.2, according to the median of 58 economists in a Bloomberg News survey. Projections ranged from 56.5 to 64…The November reading for the University of Michigan’s index was the weakest since May 1980, when soaring inflation and unemployment, along with the Iran hostage crisis caused a national malaise.The report’s index of consumer expectations six months from now, which more closely predicts the direction of consumer spending, fell to 49.1, the lowest since 1980, from 57.8 in January…Reports point to further job losses. The number of Americans on unemployment-benefit rolls rose to 4.81 million in the week ended Jan. 31, the Labor Department said yesterday.Caterpillar Inc., the world’s biggest maker of bulldozers and excavators, said this week that it is offering a voluntary retirement package to about 2,000 U.S. production employees and that more cuts may be needed this year, “depending on business conditions.”Estee Lauder Cos., the maker of Clinique and Bobbi Brown cosmetics, said Feb. 5 it will cut 2,000 jobs as declines in makeup and perfume sales reduced second-quarter profit. Company executives said on a conference call they expect the slump to last through the next 12 to 18 months and economic conditions will have a “dramatic effect” on third-quarter profit.

AnonymousFebruary 13th, 2009 at 10:09 am

“Pre-mortem” is just a euphemism for “what if” risk analysis. Someone is just trying to be clever in retrospect.If ratings agencies had practised proper risk assessments in a neutral, unbiased and ruthlessly critical manner (a la Roubini, using publicly available and historical documentation), we would not be in half as much mess as we are now, especially on the derivatives, CDS’s and CDO’s.

AnonymousFebruary 13th, 2009 at 10:27 am

There are 3 people who help me gain insight into seeing ahead into the darkness and that has been Prof Roubini, Michael Hudson, and most of all Henry C.K. Liu. To me, he is a genius and I enjoy his narrative and historical approach. His article regarding Dollar Hegemony, which I believe he coined the term, and his 2003 “The Global Economy in Transition” which he has bumped up to the top of of the list on his website are works of genius….I don’t know why more people don’t refer to Mr Liu…

GuestFebruary 13th, 2009 at 1:39 pm

Asia Times is what first made me aware several years ago of what was happening on the eocnomic front, Henry C. K. Liu at the top.

economicminorFebruary 13th, 2009 at 10:50 am

pre-mortem analysis Why this doesn’t work in real life is that on the way up in a bubble, all pessimists are not only discarded but essentially destroyed by the company bosses. Just like Presidents who say they want opposing views, they really don’t because they already have their minds made up. We are witnessing that currently. Obama says he wants bi-partisanship but he doesn’t like any of the ideas of the opposing party so he gets virtually none that he doesn’t have to pay for.So in the real world, people with opposing views are not close enough to the decision making centers to have any impact. I know as one who has been one of those who has always looked at the risks. Just my personal nature. Maybe to much but I am healthy and stable but I have for few decades had conversations ended with “Thanks for depressing me”.Now that all I have talked about is coming to fruition, people still don’t want to talk about what is going on or how they can protect themselves from it. Denial and some kind of inability to admit they made major mistakes I think. Or they are so far over their heads that they now only have hope that what Obama and the FED are doing will work. Anything else means they go under. Quite a few of the local contractors are in this position.So the idea of pre-mortem analysis is a great idea. It just won’t work outside a Thinktank where there really are no risks. People all want to get ahead and all follow the crowd and all think the crowd is right. “Don’t fight the FED” has been a mantra for a couple decades now. People thought leverage was good because inflation got them ahead of the game.You will never find a person inside an organization who will go against the bosses! Even if they think something won’t work, they will not bring it up as it will be a career killer. That and the fact that most people alive grew up under an inflationary economic system. They have faith in it and belief in it and do not have any real experience in deflation. Under an inflationary economy, even bad ideas can often eventually be made profitable. Under a deflationary economy, even good ideas can fail.

GuestFebruary 13th, 2009 at 11:22 am

“Why this doesn’t work in real life is that on the way up in a bubble, all pessimists are not only discarded but essentially destroyed by the company bosses.”I think this is absolutely correct.

generalKurtzFebruary 15th, 2009 at 5:22 am

one thing which won’t be easy to change is the fact that “You have to dance when the music is on”. Nobody, in a profit organization, will make a decision that would hurt the ongoing trend which generates huge profits for the organization.The individual who concentrates on risks will risk being fired when he wants to stop the train. That’s why he will do like others; “Dance when the music is on”.No matter what the organizational theorists say, I believe executives of an organization don’t care about the interests of the public as much as they care about the shareholders. As long as this continues, financial industry will continue to shake the world. Profit organizations will always be dangerous.Check Theory E and Theory O related to organizational change. The former one concentrates on shareholder value while the latter concentrates on the interests of all the stakeholders of an organization. Guess which one is chosen by most profit organizations when they want to change their institutes.

PhilTFebruary 18th, 2009 at 7:50 pm

Well put EconMinor … however, pre-mortem analysis could very well be the theme of a long awaited sequel to Minority Report …Best wishes to all …

GuestFebruary 13th, 2009 at 11:13 am

“Thin Air Meets Hot Air: Monetary Policy and Climate Policy Collapse Together”by Floy LilleyFebruary 13, 2009 — Two favorite authors of mine now have books out with the same title – “Meltdown”. They don’t talk about the same thing, but I see strong connections. One takes on thin air; the other tackles hot air. Both oppose current political state policies.Creating money “out of thin air” has been the stock-in-trade of the wizards of the Federal Reserve. Every ruler attempts this gambit, so he can seem to be able to finance all the wars he can profit by and to buy all the votes needed to stay in privileged rule, but none gets away with it forever. Our current economic depression is the expected result of no longer getting away with it. The gig is up. The piper must be paid. This “thin air” is what “Meltdown” by Thomas E. Woods is about. It’s the freshest blockbuster. Hot off the shelf. It deals with my oldest interest – economic freedom – by dealing unflinchingly with the Federal Reserve and its failed inflationary framework. Woods masterfully explains why the stock market collapsed, the economy tanked, and government bailouts will make things worse.Creating catastrophe out of “hot air” has been the stock-in-trade of vanguard protectors-of-the-planet since the early seventies when these alarmists cried out about a coming ice age. Nimbly, alarmism shifted from freezing to frying as some slight warming occurred. Even more nimbly, “global warming” has morphed into simply “climate change,” upon a pause in warming. Patrick J. Michaels’ “Meltdown” confirms the predictable distortion of “hot air” global warming by scientists, politicians, and the media.Monetary policy and climate policy were monolithic untouchables…Even though breathing out emits carbon dioxide, don’t hold your breath waiting for Obama to spend those false fortunes combating global warming. No real money exists. We are broke. The Federal Reserve is within two percent wiggle room of insolvency.All of Obama’s and [John] Kerry’s efforts at stimulus will simply further impoverish us all because wealth creation has ever only been about savings and real production, not about thin air credit and debt-ridden consumption.Depressions and collapses do have unintended consequences of drastically lowering carbon dioxide emissions, if you are someone who happens to think that would be a good thing. There are few emissions from collapsed industries. Hot air and global warming policies should waft away. Be thankful that no more will be wasted upon such a fruitless endeavor.[T]he collapse of the house of Keynesian cards that produced money out of thin air will permit market clearing to begin its heavy work. A fresh monetary policy will be constructed upon competitive currencies, sound money, no legal tender laws, an abolished Federal Reserve, 100% redemptive reserves, no sales or capital gains taxes on precious metals, and reaffirmation of the enforceability of gold clauses in contracts. This new monetary policy will give Americans a safety net against total financial collapse. We do not have that now.Now the air is neither thin nor hot. The air is cleared. There is work calling.

MorbidFebruary 13th, 2009 at 2:34 pm

Chilling StarsAnyone interested in man-made climate change should obtain a copy of the subject book – be sure it is the 2nd edition. In it you will see that there is a clear link to gamma rays producing additional cooling cloud cover – leading us into another cooling period. This crap about CO2 or man-made warming is not science – it is politics. Who in their right mind would consult AlGore on a science matter? You will love this book “if” you love truth and connecting dots.

theCatFebruary 13th, 2009 at 3:25 pm

Yeah sure, Denialist sheeples. Not that it matters; AGW is now probably non-reversible, so you won, yay you. You only pretend to live on another planet; you will fry along with the rest of us, you know that right? Recent work suggests we have probably 4deg C in the climate pipeline that we cannot escape, and another 2deg atop that just getting us out of a 10 year financial crisis, plus time spent wrestling whatever Fascist dictators we have to endure afterwards while we squabble over rights to the last production oil field. 6deg C total and a jolly nice global conflict, maybe 100 years end to end. And then our entire species will be totally fuxored. But the banks will be healthy by then and the pinheads got to keep their McMansions and SUVs for another decade, boo-yah!

snsFebruary 13th, 2009 at 11:14 am

Roubini: you said earlier that you did NOT pull your investments from the market before the recession that you predicted hit. Now in this recent blog you claim to not have any investments in the market. Is the latter due to the former? In other words, despite seeing it coming you LOST money and now have no more investments hence you can claim that “I never trade in markets and so I am never “talk my book” when I present my views.”Perhaps you should better define what you mean by “markets” since you explicitly admitted to losing money in your stock market investments.

Helge NomeFebruary 13th, 2009 at 11:28 am

The insiders knew all along what the outcome of the reckless behavior of people in the financial markets would be, including Alan Greenspan. That behavior was in fact encouraged by a systematic dismantling of restrictions on markets. The bubble was created on purpose so that it would burst and spook elected representatives into mortgaging the future of their constituents to the crooks that engineered the crisis in the first place. America, you are pathetic!

methinksFebruary 13th, 2009 at 12:16 pm

@ Helge NomeThey don’t need to “spook elected representatives into mortgaging the future.” They own these people; and were consciously assisted by them in “dismantling restrictions on markets.”We live in a class dictatorship. And this class is not going to engineer a financial collapse so as to put their rule in jeopardy.Your analysis is wanting – and your arrogance is a turn-off.

Helge NomeFebruary 13th, 2009 at 2:07 pm

Hi methinks,You are quite correct, you live in a class dictatorship just like we do here in Canada. However, because there is no organized opposition to the world spider, it thinks it can do whatever it pleases by engineering a crisis and grabbing your assets just like it spooked you into sending troops into Afghanistan and Iraq by creating the 9/11 event.

GuestFebruary 13th, 2009 at 12:06 pm

WASHINGTON – JPMorgan Chase & Co. and Citigroup Inc. are halting home foreclosures while the Obama administration develops its plans to help the U.S. housing market.Survival of the least fit. God help you if you are prudent and debt free.

MorbidFebruary 13th, 2009 at 2:43 pm

Don’t Wait Until You Are 70.5 To Start Drawing Down On Your 401K’s…Bamelot will in a couple of years increase taxes on everyone – pushing all into higher tax brackets. Don’t wait – use the intervening time period to suck down your 401K while still in the 15% tax bracket range – well, that is where I am at being retired.A HELL-STORM of inflation/hyperinflation will certainly trigger higher tax brackets in any event withing a few years I suspect.Am I over-reacting?

bob mFebruary 13th, 2009 at 12:48 pm

Why do we need to expand an economy, isn’t it the rapid expansion that got us here. The psychological aspect in N.Roubini’s bit influencing markets such as fear and greed plays good with the major players.But to involve the general consumer one must create a “herd” mentality where paying way too much for your home and overlevaging oneself unreasonably takes tactics by the players, i.e., Wall street, mort brokers, etc, to convince the so called “sheeple” to accept being in debt up to your eyeballs is the norm.The American Sheeple are basically led by the nose by their so-called advisors who have drank the magic potion of denial laced with greed and simply sell the simpletons the toxic products that we now have to all pay for. Sort of like cleaning up all the dead mice and rats after the pied piper led them to their demise.

interd0gFebruary 14th, 2009 at 10:12 am

The idea of continual growth is so built-in, to question it is like proposing the 5th dimension.Nobody can even recognise the question.It will be rebutted immediately with talk of population growth, expectations etc etc..It would take a major major cataclysm to start over with a new society based on a new idea of what a constitutes a decent life, and it would take wisdom from the leaders way beyond anything we have seen from the Church, the State or Acedemia.Society has had it, but there are still salvations for the individual.

Pecos BankerFebruary 15th, 2009 at 7:14 am

Capitalism requires constant growth because of interest on loans–the time value of money. If growth stops, debt cannot be serviced. Collapse.

AnonymousFebruary 13th, 2009 at 3:44 pm

Great interview and insight….Robert Kuttner and Michael Hudson on the Obama Administration’s $789 Billion Economic Stimulus Package and $2.5 Trillion Bank Recovery Plans

Interd0gFebruary 14th, 2009 at 10:03 am

If only they could more like scientists and engineers. When forming a new esoteric theory or simply troubleshooting a complex system, whatever you decide, you must then try to prove it wrong – not right!This separates a scientist from a blogger.Half the time, you will prove yourself wrong before doing damage ,publishing rubbish, or proving yourself wrong the hard way by trial and error.