He's not called Dr. Doom for nothing. Yesterday's summary of global economics from Nouriel Roubini is enough to make readers convert all investments to hard assets -- land, food supplies, a good bike and a bullet-proof vest.
- eurozone crisis is worsening
- disorderly breakup of the eurozone remains possible
- US economic performance is weakening
- political gridlock over fiscal adjustment is likely to persist
- China, its growth model unsustainable, could be underwater by 2013
- slowdown in the US, the eurozone, and China already implies a massive drag on growth in other emerging markets, owing to their trade and financial links with the US and the European Union (that is, no "decoupling" has occurred). At the same time, the lack of structural reforms in emerging markets, together with their move towards greater state capitalism, is hampering growth and will reduce their resiliency.
- tensions in the Middle East between Israel and the US on one side and Iran on the other on the issue of nuclear proliferation could reach a boil by 2013
- Compared to 2008-2009, when policymakers had ample space to act, monetary and fiscal authorities are running out of policy bullets (or, more cynically, policy rabbits to pull out of their hats). Monetary policy is constrained by the proximity to zero interest rates and repeated rounds of quantitative easing. Indeed, economies and markets no longer face liquidity problems, but rather credit and insolvency crises. Meanwhile, unsustainable budget deficits and public debt in most advanced economies have severely limited the scope for further fiscal stimulus.
==?To prevent a disorderly outcome in the eurozone, today's fiscal austerity should be much more gradual, a growth compact should complement the EU's new fiscal compact, and a fiscal union with debt mutualization (Eurobonds) should be implemented. In addition, a full banking union, starting with eurozone-wide deposit insurance, should be initiated, and moves toward greater political integration must be considered, even as Greece leaves the eurozone. Unfortunately, Germany resists all of these key policy measures, as it is fixated on the credit risk to which its taxpayers would be exposed with greater economic, fiscal, and banking integration. As a result, the probability of a eurozone disaster is rising.
And, while the cloud over the eurozone may be the largest to burst, it is not the only one threatening the global economy. Batten down the hatches.
There are a handful of comments as well, the best of which reads In the immortal (paraphrased) words of Jon Stewart: There can't be as many perfect storms as pundits say there are. Maybe these are ordinary storms and we're just on a shitty boat?
I'm less pessimistic than Dr. Roubini, partly because I'm an irrational optimist, but also because a Soros analysis allows for unpredictable events and human responses that psychologists call lateral thinking.
And through the Soros lens the Roubini predictions can be seen as a collection of self-fulfilling prophesies. Even if most of them prove true, all that is necessary for the aggregate to be wrong is one or two unexpected surprises.