Nouriel Roubini's Global EconoMonitor

A Plea to Policymakers: We Can’t Risk Another Year of Delay

From the Financial Times:

For the last three years the world’s biggest economies – the US, eurozone and China – have been living up to the infuriating euphemism so beloved of policymakers: “kicking the can down the road”. They have been avoiding the tough decisions that are required to address their fundamental economic, financial and fiscal problems.

The US has postponed its fiscal consolidation and avoided the other structural reforms – investments in infrastructure, education and skills and changes to energy policy – that are required to restore its potential growth rate. The eurozone has been in denial of the fact that some of its member states are insolvent, as well as unable to survive and grow in a monetary union. China has persisted in its weak currency, to support its export and investment-led growth model where savings are too high and consumption too low.

In all cases political constraints – the approaching elections in the US and leadership transition in China at the end of 2012, and the inability of the eurozone’s 17 governments and coalitions to coordinate policies coherently while staggered elections and changes of government take place – have led leaders to avoid the short-term pain and political costs of tough decisions that will yield benefits only over the medium term.

It will become clear in 2012 that this game of “kicking the can down the road” is a zero-sum game. When domestic demand is weak, and either deleveraging or structural constraints are holding back private and public consumption, every country would rather have a weak currency to restore growth by boosting net exports. But if one currency is weaker another needs to be stronger; and if one country’s trade balance is improved another is worsened. So currency tensions can lead to currency wars and eventually to trade wars.

So in 2012, the combination of market pressures and conflicting political constraints will make it more difficult to kick the can down the road. A few eurozone members may need to coercively restructure their debts and even consider exiting the currency union. A slowdown in China’s growth may come close to being a hard landing. Markets in the US may become more concerned about the political gridlock that stops policymakers taking the necessary actions and maintains the unsustainable US twin deficits.

If the world’s biggest economies continue to play the same game and try to kick the cans further down the road for another year, the cans will become bigger and heavier and eventually hit a brick wall. By 2013 at the latest, but possibly already in 2012, a perfect storm of a double-dip recession in the US, a disorderly scenario in the eurozone and a hard landing in China could materialise.

13 Responses to “A Plea to Policymakers: We Can’t Risk Another Year of Delay”

diatoo1December 21st, 2011 at 1:41 pm

For the Euro zone wouldn´t it be of some help in the medium term, especially for peripheral countries with competitiveness problems who want to remain in the Euro zone, if Germany would do two things: one, induce, howsoever, its exporting companies to tentatively and step by step over a few years increase their Euro export prices, in order to achieve a measured reduction in German net export, while by same means increasing their profit margin? And two, for its export companies "sort of fix against depreciation the Euro rate to the US$" at e.g. 1,30 and in case the Euro depreciates, say to 1,25, to put an export tax on export contracts denominated in Euro to countries which use US$ or are pegged to US$, so that prices in US$ stay the same (in this case 4% tax (1,25*1,04=1,30))? Of course this would have to be adjusted/reduced accordingly for countries which depreciate against the US$. If it is done carefully, it would also be good for Germany´s terms of trade as well as a tax revenue would be welcome.

Thomas_FisherDecember 21st, 2011 at 6:33 pm

The more I look at this world economic mess it appears there are aspects of which are not being publicly addressed. Several WHAT IF scenarios could be chosen as logical possibilities.

One iceberg that is currently within the public domain is the law case { 11 CIV 8500 } filed on November 23 2011in the United States District Court, Southern District of New York, assigned to Judge Holwell, matter was brought by a William H. Mulligan, Jr. of the legal firm of Bleakley Platt & Schmidt located in White Plains, NY. This is a 112 page complaint naming persons and organizations within the highest financial positions in the world. The scenario set forth within the filing spans many decades, mentions vast Gold bullion hordes and securities dating back into the nineteen twenties. On the surface this does not appear to be another back room crank filing. I would like to hear Nouriel's explanation of the historical frame work about this matter.

"— and the truth will set you free.."

economicminorDecember 22nd, 2011 at 2:55 pm


I have read the current piece twice and you write about the obvious. Obvious to many of us who have actually been ahead of you in seeing the slow motion train wreck.

You don't actually propose any real solutions. This is a predicament. If a government could move toward fiscal consolidation and do what you suggest under the current paradigm, you get marching in the streets and riots because all governments do is take from one and give to another and there is a cost in doing so.

In the current predicament, all debt is someone else's income. And if you have been paying attention to your own site and researchers, not only has the assets backing these debts declined absolutely dramatically but so has the income to support existing debts. If you restructure these debts, the losses or write downs are some one's income. This lowers the entire realistic economic output numbers and the GDP.

In a democracy, who is it that is going to vote for some one that even suggests such? No one wants to admit what is inevitable because they become instantly unpopular.

Predicaments can be mediated but not solved. The out comes can be altered or directed but major changes are on the way. Change is constant and you can only hold it back for so long before it breaks out. If no one is willing to risk admitting to the predicament, then when it breaks out chaos will ensue.

That is what I believe we face. And life as we have known it is going to change dramatically. It is sad that people with influence like you either can't see the predicament or are to afraid to call it for what it is. We need to recognize it to affect the outcome. More of the same of borrowing fiat money into existence is just digging the hole deeper. Taking from Peter to pay Paul and taking a cut doing it is no answer when we are already insolvent.

economicminorDecember 22nd, 2011 at 3:39 pm


You should watch this Max Keiser/Steve Keen video. There is a lot of good info in it about what is happening. The first half with Stacy Herbert has a lot of hyperbole but the concepts are right on.

The real part I want you to watch is the second half with Steve. He understands better than anyone else what is going on under the hood of the economies of the world. A truly brilliant man and a great teacher.

PrintMoreMoneyDecember 23rd, 2011 at 5:35 pm


You have become a trusted source of rationale economic thinking in my life.

I, as well as Thomas Fischer, in this comment thread, urge you to review and comment on the pending financial collapse. There are reasons why the BIS, the IMF and World Bank, The Fed are not solving the obvious imbalances running the financial world.

Please download from here, this important lawsuit. We all await your input, whatever it is.

Nothing less than a complete reboot of the monetary system and realignment of what is legitimate debt will free us all from this madness.

Artificial scarcity and monetary slavery will end. Humanity cannot be kept down forever by religious zealots.

What fun it will be solving all these problems. So easy, if everyone simply wakes up and chooses to do so. We live on a planet with plenty.


Aegean1972December 30th, 2011 at 10:33 am

Part 1

I also think we could all seriously benefit from a "reboot" of the monetary system, as well as a huge debt-restructuring of the worlds debts. Can that be possible? Not "all at once".

But "gradually" through the next decade (or two) it can be done. But first, things will need to get much worse for the worlds leading economies (US, Europe, China) for them to start working out a solution. And how possible is such a "solution"?

What benefits the US, might not benefit China (a principal holder of US debt and someone who doesnt play by the rules) and what might benefit Germany (or Europe in general) might not be so welcomed (as a solution) for the US.

So, even though a reboot to the worlds monetary system is a good start, the actual logistics and details behind it (to make it happen) might prove inslovent (i borrow the word "insolvent" from Nouriels' great articles).

Aegean1972December 30th, 2011 at 10:34 am

Part 2

So whats the solution? Do we have the luxury of kicking the can down the road for another decade? Not by any means. The markets are just waiting to get the US in their "claws". Right now they re maybe busy chopping down europe (or at least trying too), but as soon as they smell a little "blood" coming from the other side of the Atlantic, they will come like sharks. And trust me, the way America "bleads" at the moment (financially speaking), it wont be long till the sharks rush over to start biting chunks.
Merkel's plan (imho) is a risky one and with flaws. But at least she is DOING SOMETHING (in contrast with the US who is fast to critisize Merkel, but does nothing for its out-of-control 15 trillion debt that will jump to 16trill in no-time). For how much longer can the FED print money? Not for long, without having serious consequences. And when people are out of a job, these inflationary consequences (along with high commodity prices) will hit the street and people will get angry.

Aegean1972December 30th, 2011 at 10:34 am

part 3

The more policy-makers kick the can down the road, the angrier the 99% will get. Neither decision is easy (measures or not measures). But in contrast with the US, Europe is -at least- trying to do something.
Merkels plan is old-skool economics. And old-skool economics is what built the free-market system that puts food on our table. The euro-periphery might not like the medicine of the austerity-measures. But in-time and if things (until then) dont get out-a-hand, Merkel's Europe could be on its way to healthy growth in 5-10 years from now. With a healthier/leaner banking system (after off course absorbing the "earthquakes" of all the restructurings of the periphery in the next 3 years), a weaker more competitive euro (perfect for their exports), stonger consolidation of the 17-members economies and a bit-better balance sheets for the periphery countries (at least the ones who will survive the perfect storm of the next years).

Aegean1972December 30th, 2011 at 10:35 am

The US could learn a thing or two from this plan. Criticizing Merkel is easy. Starting to do reforms (the way Europe has) is the tough decision with political cost. And so far the US gvmnt doesnt want to touch that hot potato. But for how much more can they kick the can? Not much if u ask me.
China is in for a hard landing and in my opinion thats a good thing. They were getting too-big, too-powerfull, too fast. They built a great bubble (in more than one way..).

part 4

But we can learn a thing or two from them. Especially as far as using infrastructure-rebuilding to boost our growth numbers for a decade. Infrastructure alone off course wont "cut it". But hey, its a start and along with other small or bigger steps it will get us there (back to healthy growth, profits and smaller debts). Back to old-skool, "High St" economics. Of what should be, the foundation of our system.

Aegean1972December 30th, 2011 at 10:35 am

part 5

All of us are dreading the perfect storm of 2012-13. But maybe -just maybe- it is a good opportunity for change. Major change. One step at a time. But some of these steps cant wait. They need to be done ASAP.

Things will get worse before they get any better.

But its the 31st of December. The last day of the year. A little more optimism wouldnt hurt us. We have enough thoughts in our minds every day, enough stress and deadlines.

We can change the world, one step at the time.

Happy New Year.

neven strmskiJanuary 9th, 2012 at 6:47 am

This article is an excellent analysis by Dr. Roubini. However, there are several alternatives ( in my humble opinion ) to the situations in the U.S., China and the Euro Zone.

First of all, looking at 2012, I believe there is little likelihood that all 3 of these economies will become a disaster. First and foremost, the Euro Zone has little likelihood of dissolving in 2012, due to the ECB loans and debt to maturity of bonds in the Euro Zone. 2013 will be the REAL TEST for the Euro Zone, based on national presidential / prime ministerial elections in Germany, France and Spain.

Secondly, China is not likely to have a hard landing in 2012, due to its command economy's ability to rapidly adjust. Again 2013 and the medium term is a different, less certain story. Fortunately for the global financial system, China is in a position where it MUST continue to appreciate it's currency at a quicker pace than the last several years. It it likely to become a solid global reserve currency within the next 5-7 years or so, along with the US dollar and hopefully the Euro as well. This is a matter that I believe Dr. Roubini has failed to take into consideration in the short and medium term. This likely event would decrease the likelihood of a currency and trade "wars" in 2012. The prognosis for 2013 is another matter all together

Lastly, the probability of a double dip recession in the U.S. is no more than 50/50 at best, due to the historical ingenuity of the U. S. economy. It is also likely that medium and especially large U.S. banks will purchase ( at fire-sale prices ) assets off the banks in the Euro Zone that must continue to deleverage assets of its balance sheets.

To have a global financial meltdown (again in my humble opinion ) in 2012, at least 2 of the 3 economies in either … China, the U.S. and the Euro Zone must falter in a dramatic fashion. The least likely disaster for 2012 is the Euro Zone, followed by the Chinese economy. The faltering of the U.S. economy in 2012 is the most likely scenario.

This is all a matter of timing. One disaster out of three in 2012 will very likely NOT spell financial Armageddon. 2 out of 3, or 3 out of 3 would be disastrous but EXTREMELY unlikely.

Neven Adam Strmski

For further relevent analysis please see … /

UlfMay 16th, 2012 at 8:20 am

All of us are dreading the perfect storm of 2012-13. But maybe -just maybe- it is a good opportunity for change. Major change. One step at a time. But some of these steps cant wait. They need to be done ASAP.