Nouriel Roubini deleveraging recovery free fall close to the bottom depression growth
When I go out with my brother he introduces me this way: “This is Steve, he predicted the banking crisis five years before it started!”
Nice intro, no? So … where is my slot on CNBC?
Unfortunately, at this point he doesn’t seem to have a clue.
He posits a weak recovery will begin at the end of the year. He recalls suggesting the recession would last 24 months, the current slowdown having begun in December of 2007. He’s fallen into a prediction trap. He probably thought giving himself two years would be pretty safe since no post- war recession has lasted so long. I think he’s off by a few months. I think this recession will probably last around 24,000 months. I’m kidding.
I’d go for the 240 million months but I don’t see humans being around that long. (I’m not kidding.)
Roubini misses a bunch economic inputs. He does not seem to see the relationhip between increasingly expensive fuel and the rising levels of unemployment and bankruptcies. He doesn’t see the government strategy to substitute cash for energy as a problem. He forsees another stimulus. He focuses on the US economy without examining the situations in China, Japan and in the Eurozone. He misses the choking noises emitting from various bond markets.
Roubini seems to think the absence of a crisis means the end of the recession. Like most macro- economists, he gets it wrong. Menzi Chinn points out that there is agonizing among some in the profession. Otherwise:
I think this is a happy time for some economists outside the (perceived) mainstream, who can now chortle “I told you so”. One recent example is by Mario Rizzo.
The objective facts are far easier to handle in the models than the shifting, subjective expectations of people trying to deal with radically uncertain futures. This is what may get reflected in financial markets. Attempting to understand all of this requires conceding that some knowledge will be imprecise and will lie outside of the box (model). The model is simply a toy that can be thrown out when it no longer suits. This means that it is indeed possible to have valuable knowledge outside of hyper-models (although, of course, all thinking proceeds in terms of assumptions and simplifications).
But this will give the “scientists” among us headaches. As John Maynard Keynes famously said about the econometrician Jan Tinbergen, “[H]e is much more interested in getting on with the job than in spending time in deciding whether the job is worth getting on with.”
Why can’t the ekooks get their head around the situation? Roubini has no establishment connections that would compel him to act as a mouthpiece. He doesn’t work for Goldman- Sachs or the Treasury or the NYSE. He can speak freely and will be respected for it in the morning. Yet, in this interview he comes across as far less bearish as co- guest Ariel Cohen who focuses on energy and price resonances … in Russia!
Who cares about Russia!?
Cohen fails to mention the obvious as well! Energy costs are hollowing out the US economy even as I sit here talking.
It isn’t hard to predict the outcome of a process that has an inevitable outcome, so I cannot claim any special clairvoyance. It is more a matter of choosing to look. I don’t believe Mr. Roubini’s specialty allows him to observe inputs other than credit/money flows and investment costs. He does observe that credit and its gestation processes have been nationalized. I suppose he believes this has made credit less risk- costly … and leaves it at that.
Plus- $65 oil has its fingers around the throat of the OECD nations and is reaching for the developing world which is energy- hedged by cheap labor. We are in an allocation context now. We have to pick between having energy or having commercial development; in the past the US and rest of the developed world could choose, “all of the above.”
No more, the game is up.
There is another ‘Internet Rumor’ that has the US declaring a bank holiday – perhaps in September – accompanied with a devaluation of the dollar.
A top investment advisor, Harry Schultz – who was MarketWatch’s Peter Brimelow pick for financial newsletter of the Year in 2008 – is now claiming:
Some U.S. embassies worldwide are being advised to purchase massive amounts of local currencies; enough to last them a year. Some embassies are being sent enormous amounts of U.S. cash to purchase currencies from those governments, quietly. But not pound sterling. Inside the State Dept., there is a sense of sadness and foreboding that ‘something’ is about to happen … within 180 days, but could be 120-150 days.
Investment advisor and former Army Counterintelligence officer Bob Chapman is saying the same thing, reporting on the possibility of a so-called “bank holiday” planned for late August or early September. According to Chapman’s sources, U.S. embassies around the world are selling dollars and stockpiling money from respective countries where they operate.
These kinds of rumors are quite similar to rumors that have Barack Obama as not being the President because he was born in Nairobi, Kenya. There doesn’t appear to be any rationale behind this bank holiday rumor.
First of all, the bank holiday would accomplish exactly what? Friday, Saturday and Sunday are more than enough time to roll over failed banks and – as during the crisis period of last year – bail out important friends of the Treasury Secretary.
And crush the competition of Goldman- Sachs and JP Morgan- Chase. Ol’ JP would be proud!
When FDR declared his famous bank holiday in 1934, there was no deposit insurance; depositors were yanking deposited funds from accounts and causing solvent banks to fail. Banks had been failing for years and the stream of failures fed on itself, becoming a river of palpable fear. The bank holiday stemmed the panic and gave Roosevelt the opportunity to ship stacks of liquid cash – by airplane – to banks all over the country.
See, “The Glory and the Dream” by William Manchester.
Today, there is the FDIC. Deposits are insured to the amount of $250k. There is no need for a holiday.
As for a devaluation; compared to what? The world’s other currencies are as sorry as the dollar. Even the once- mighty Swiss franc is on the ropes as Switzerland teeters at the edge of a credit meltdown. Devaluation of the dollar would simply make petroleum that much more expensive. If the economy is staggering around now like a drunken sailor as a consequence of $60 oil, imagine what it will do with oil prices twice as high.
Talk about shooting yourself in the foot. Even Obamalama isn’t dumb enough to do something like that. (Or is he … ?)