In addition to being passionate about personal finance and music, I do what I can to maintain a sense of style (as opposed to fashion, which I believe is more fleeting than style — but I digress). I just got this month’s issue of GQ, and while I typically rely on the magazine for little more than its glimpse into the fashion world, I was drawn to Benjamin Kunkel’s article about Nouriel Roubini. For those of you who don’t know who he is, Roubini is an economics professor at NYU’s Stern School of Business. He also runs his own consulting firm, Roubini Global Economics, and maintains a blog of his own, Nouriel Roubini’s Global EconoMonitor. More significantly, Roubini is probably the most prominent and prescient economist who predicted the current economic crisis. As early as 2006, Roubini predicted that the United States “was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence, and, ultimately, a deep recession.” Boy, was he right…
Born in Turkey to a family of Iranian Jews, Roubini spent a few years in Tehran, Iran and Tel Aviv, Israel before his family settled in Milan, Italy when he was five years old. He has degrees from Bocconi University, in Milan, and Harvard, has taught at Yale, and has previously worked with the IMF (International Monetary Fund), the World Bank, the White House Council of Economic Advisors, and the United States Treasury Department (under President Clinton).
According to Kunkel, Roubini thinks the U.S. economy “is still limping from what he likes to call a hard landing” — a fall from which you don’t bounce right back up.” Roubini expects that the economy will grow at approximately 1.5% — less than half its historical rate — thanks, in part, to government stimulus. Kunkel quotes Roubini:
If you ask about the medium term, actually, I think the opportunities for global growth on a sustained basis are quite positive. Right now the basic building block of global demand, the U.S. consumer, is faltering; therefore, there’s a lack of aggregate demand relative to supply. The supply has been rising because China and emerging markets have been investing so much in new factories and new productive capacity. A lack of demand relative to excess supply — that’s what the global recession is.”
Roubini calls for a complete rebalancing of the global economy, with the U.S. and Europe saving more and other countries, such as China, Japan, and Germany, spending more. For the U.S., he predicts tight credit, high unemployment, and possibly even the return of stagflation a la the 1970s, depending on the relationship between oil prices and overall growth. In early 2007, Roubini said “a strong rebound is unlikely,” but Kunkel points to the “more colorful” phrase of financial journalist Doug Henwood: the routinization of crappiness.
Despite the Dow’s recent return to 10,000, Roubini remains uncertain about the future:
The key issue is not whether the recession is over today or in three months but whether over the medium term growth is going to be robust or anemic, or even whether there’s a risk of a double-dip recession. And I believe the recovery is going to be anemic.
Why an anemic recovery? He points to the fact that banks are still unwilling to lend; that U.S. households are still in debt and out of work, and that corporations are still cutting costs, rather than increasing revenue.
Though many feel they no longer need Roubini, he said to Kunkel that “[t]oo big to fail is now too bigger to fail. Welcome to the great financial crisis of 2014.” I sure hope he’s wrong, but I want to be ready in case he’s right. Isn’t that why we’re all here?
Thirtysomething Finance 