- He sounded like a madman in 2006. But he was a prophet when he returned in 2007, recalls the IMF economist Prakash Laugani in an interview with the New York Times.
Although most of his dark predictions proved to be achieved rapidly, after the financial crisis was on, so people were skeptical about theories on the continued decline and major bank collapse. But with the Bear Stearns implosion and the forced sale in March 2008 fell silent optimists.
In January 2009 he was appointed the world's second largest graduate of Prospect Magazine, just after General David Petraeus, who led, inter alia, the U.S. army in Iraq in recent years. Nouriel Roubini is not above the attention, but is one of the most sought after think of the world's studio sofas.
During the Davos meeting in 2008, which generally went in dark colors, was Nouriel Roubini doomsday prophet all wanted to talk to. His views were hardly brightening, but he declared quickly and easily that this is the worst economic crisis for the United States for decades and the worst financial collapse since the great depression. Any recovery in the short term was naive to believe.
- There is too much optimism right now, that all monetary and fiscal stimulus will get us out of this U.S. and global recession in the second half of 2009. I think the whole 2009 is lost and that growth in 2010 will be very weak, "he said during the Davos meeting to CNBC.
- The market believes that there is a simple solution, by the State just throw money at problems. These things take time, even with the best ideas, it will take years before we see an improvement.
On February 24 he developed his forecast in an interview with Business News Europe that the worst still lies ahead.
- For USA, we are not away from the problems of any kind, "he said and declared that the situation is even worse in Europe.
- We see a real hard landing in the new European states. A few years ago I wrote a report which concluded that budget and trade deficits, overvalued currencies and short-term borrowing in foreign currencies would lead to severe turbulence in countries such as Hungary, Romania, Bulgaria and the Baltic States. It is not surprising that they fall; he summarizes and criticize the analysts who argued that the new European economies would avoid problems simply because they lacked exposure to sub prime and its bastards.
But the worst with Nouriel Roubinis the future is that he believes the U.S. banking system in the near future will be insolvent. He predicts losses of 3.6 trillion U.S. dollars as a result of the crisis, in a banking system with 1.4 trillion dollars in capital.
- This is a systemic crisis. The problems with Citigroup, Bank of America and others indicate that the whole system is bankrupt. In Europe, the problem is the same, he told Bloomberg News recently. For two, three-year term, the darkest scenario be that there are no independent trade institutions remain.
Nouriel Roubini believes that a state takeover of the U.S. banking system is essential, but wonders at the same time if it is enough.
- No one is for a longer-nationalization of the banking system; it would be a bad idea. It is about the U.S. government takes over banks short-term, separates the good and bad assets, and then sells them back to the private sector. It was so for example, made in Sweden, while in Japan was "zombie" banks keep on leading to a lost decade, he said in a panel discussion on the U.S. ABC for just over a week ago.
It will not be easy, and costs can be significant for both banks and the state. But he states that some of the major banks now are so wounded that their assets are well below their liabilities, and to just continue to pump in aid money will not help.
- The problem with a "bad bank" (a national institution which remove illiquid assets from banks) is that at what price should I buy "toxic assets"? To buy them at a high price leads to large government expenditure, but if you buy the correct market price, the banks become insolvent - you have to go ahead and buy them up, "he explains.
He is also very critical of how the administration handled the financial crisis, with major support payments to banks. Nouriel Roubini believes that being federalized bank losses, and thus forcing taxpayers to pay and thus undermine the gargantuan U.S. debt pit even deeper.
- This is a huge waste of taxpayers' money. You have to clean out the banks' management and shareholders, and even those who hold bonds should get a haircut, he explains, adding that only after this is done, they can now adjusted the banks stand on its own feet.
But he still supports the president Barack Obama stimulus package, although he advertises the fact that more must come. Here he is in great contrast to Peter Schiff and Marc Faber who we have portraits have previously in this series. He also disagree with that a huge inflations waiting around the corner.
- Inflation is FEDSA (the U.S. central bank; red note) last problem. We have ongoing problems in the down side, moribund financial system and a slowing labor market. At the same time, oil prices fall, as inflation is the last problem.
However, he has coined the term contractor deflation (not stagflation) to summarize the four forces that are now tearing into the global economy: A reduction in world trade, a feedback (recouping) of the world to the American crisis, slowing labor markets and a sharp fall in commodity prices.
The recession will continue longer than many others argue, think Nouriel Roubini. 2011 may be too early for a significant turnaround. But the decisions that governments and central banks can shorten the crisis - but especially in Europe is the stimulus for slow and too small, "he says.
