Archive for April, 2009
A few years back, before this crisis erupted, several economists were concerned about the sustainability of the large global imbalances fueled by the so-called Bretton Woods 2 (BW2) system. These economists recognized in the tendency of emerging (export-led) economies to manage their exchange rate systems the origin of large trade and current account surpluses that, via large foreign reserve accumulation, were financing the mirror of those surpluses, namely the large U.S. trade and current account deficits. These surpluses, primarily in several exports-led Asian economies, and also in oil producing countries, ballooned to extensive proportions in 2007 and 2008. The purchases of U.S. government bonds by these investors helped keep long-term interest rates low and led many investors to seek out high-yielding investments especially in some emerging markets.
Lally Weymouth of Newsweek and The Post sat down last week with economist Nouriel Roubini. Excerpts:
Q. You are the economist known for predicting the economic downturn in 2008. What do you believe is happening to the economy today?
A. The consensus among economists is that they see the economy that was contracting for the last two quarters at 6 percent going into positive economic growth by the second half of this year. . . . I believe that the rate of economic contraction is going to slow from negative 6 percent in the last two quarters to negative 2 percent by the fourth quarter.
Next year, I believe that the growth rate is going to be low — 0.5 percent for the U.S., compared to the consensus view of [plus] 2 percent. I believe the unemployment rate this year is going to go well above 10 percent and will be well above 11 percent next year, so even if we are technically out of a recession, we are going to feel like we are in a recession.
I do agree that there is an improvement in the sense that the rate of contraction is not going to be as much as it has been in the last couple of quarters, but I still believe that the bottom of the economy [will be seen] toward the beginning or middle of next year. So my views are more bearish than the consensus.
I believe things are going to be very mediocre throughout the world; in particular, in Europe and in Japan. They will only get out of their recession toward the end of next year.
So you are still Dr. Doom?
No, I am not Dr. Doom. I am Dr. Realist. I don’t believe we are going to end up in a near-depression. Six months ago I was more worried about an L-shaped near-depression. Today, after the very aggressive policy actions taken by the U.S. and other countries . . . we are, instead, in the middle of a U.
Today we present some of the main conclusions of the recently released update to the RGE 2009 Global Economic Outlook.
The global economy is in the middle of a synchronized contraction that will push global growth into negative territory in 2009 for the first time in decades. This will be the worst financial crisis since the Great Depression and the worst global economic downturn in decades. Global trade volumes face their sharpest contractions of the postwar era – trade is expected to contract 12% in 2009 due to the severe and prolonged global demand slump, excess capacity across supply chains and the continued crunch in trade finance.
Many analysts and commentators are pointing out that the second derivative of economic activity is turning positive (i.e. economies are still contracting but a slower rather than accelerated rate) and that green shoots of an economic recovery are blossoming. RGE Monitor’s analysis of the data suggests that the global economic contraction is still in full swing with a very severe, a deep and protracted U-shaped recession. Last year’s economic consensus forecast of a V-shaped short and shallow recession has vanished. While the rate of economic contraction is slowing compared to the free fall rates of Q4 of 2008 and Q1 of 2009, we are still a long way away from the economic bottom and from a sustained recovery of growth. In particular, in Europe and Japan there is little evidence of a positive second derivative of economic activity.
4/20/2009 – CNBC – Roubini: US to Grow 0.5% Next Year (click here for video)
CNBC – Roubini: US to Grow 0.5% Next Year
Project Syndicate is distributing in newspapers around the globe my latest op-ed written about two weeks ago where I discuss the economy and the recent bear market rally:
End of economic gloom? Nouriel Roubini
Mild signs that the rate of economic contraction is slowing in the United States, China and other parts of the world have led many economists to forecast that positive growth will return to the US in the second half of the year, and that a similar recovery will occur in other advanced economies.
The emerging consensus among economists is that growth next year will be close to the trend rate of 2.5 per cent.
Investors are talking of ‘green shoots’ of recovery and of positive ‘second derivatives of economic activity’ (continuing economic contraction is the first, negative, derivative, but the slower rate suggests that the bottom is near).
4/20/2009 – Intelligent Investing with Steve Forbes – Steve Forbes interviews Nouriel Roubini (click here for video)
Published in the Financial Times on April 15 2009
The supersonic Concorde aircraft was considered in the 20th century to be the most sophisticated airliner, flying at twice the speed of sound. Its crash in Paris on July 25 2000 destroyed this confidence. Some blamed the crash on metal fragments from another aircraft; others argued that Concorde was overweight and unbalanced. The accident led to some design modifications but in 2003 Concorde was in effect jettisoned in favour of subsonic aircraft, much slower but easier to maintain.
It is not too much of a stretch to compare the global financial system of the pre-subprime era to Concorde. It was fiercely innovative and grew at a record pace for close to two decades, only to suffer a new type of hard landing without clarity as to whether it was the fault of the system’s pilots or also of those regulating its maintenance.
4/14/2009 – Consumer Reports – Nouriel Roubini: It’s not all bad news (click here for video)
4/13/09 – PBS Nightly Business Report – One on One with Nouriel Roubini of NYU
Interview starts at 5:20 (click here for video)
Transcript from above PBS On Air interview:
4/9/09 – Forbes – Roubini interview with Forbes.com (click here for video)