Remember Dr. Doom?

Who got it right about the crash, but no one would listen? Here’s what he’s saying now:

The odds have risen sharply this week of a fresh financial crisis that will plunge the global economy into a major depression, as policymakers fall far short of the radical measures needed to address the fast approaching storm, economist Nouriel Roubini warned yesterday.

Roubini, an economist famed for having correctly predicted the 2008 global financial crisis, told Emerging Markets last night in a telephone interview that the chances of a chaotic breakup of the eurozone had soared, as world leaders failed to take meaningful action to combat the risks posed by rapidly escalating financial market tensions and a worsening global economic outlook.

Policymakers continued to focus on the threat to the eurozone posed by Greece, when the locus of the crisis had shifted to Italy and Spain, he said. “At this point it’s not any more about Greece or Ireland or Portugal. The contagion has spread to Italy and Spain.”

He said Italy and Spain could go bust within three months without an immediate tripling of the European Financial Stability Fund (EFSF). “Italy and Spain are toast, unless we have a tripling or four times as much of official resources to backstop them,” Roubini said.

Even an enhanced E440 billion EFSF – increasingly seen as a solution to the eurozone’s funding pressures – would not be enough to backstop those nations in a climate of extreme financial market volatility, he added.

“My worry is that the EFSF is going to run out of money, and then there is not going to be a lender of last resort to backstop Italy and Spain,” Roubini said.

He added that “at the rate at which there is now pressure” on Italy and Spain, an enhanced EFSF would be unable to cover their funding needs “by year-end or March of next year”.

He said a lender of last resort was needed to backstop Italy and Spain, but that none of the options – a supersized EFSF, the issuance of a joint eurobond by member states, or the provision of unlimited liquidity by the European Central Bank — were politically feasible.

“There are only a very few options, none of them are feasible,” Roubini said.

“At this point the debate is not whether we’re going to have a double dip recession or not. The double dip has started,” he said.

“The only question is whether we are going to have a mild recession in advanced economies or whether we’re going to have a severe recession and another global financial crisis.

“The answer depends on whether you can keep Italy and Spain together.”

Roubini lambasted G20 financial leaders meeting in Washington yesterday for failing to take any action, after a week that had seen some of the most severe financial market swings since the 2008 crisis.

He said the time was nigh for coordinated expansionary policies among advanced economies. He slammed officials for refusing to countenance fiscal stimulus.

“We’re going to make exactly the same mistake like during the Great Depression, when we took away fiscal stimulus too soon. That is a huge risk right now,” he said.

“The IMF has it right, Christine Lagarde has it right. If everybody does fiscal austerity at a time when private demand is falling again you’re going to have another global depression.”

4 thoughts on “Remember Dr. Doom?

  1. I guess trickle down has been a failure. The past 30 years have shown us that by transferring all the wealth away from the middle class and up to the top 10% results in very little down trickle. What seems to happen is that them’s that gots all the loot in the first place only takes the new money and saves it. Then they get greedier exponentionally. Capitalism doesn’t work.

  2. The transfer of wealth to the oligarch/plutocrats is the same as the transfer of wealth to the government; it sits idle, effectively destroyed, and is “invested” in seeking rents, which is to say capturing more of the money supply for itself. Rents=taxes. The difference is the govt also creates money by spending it, and at times like this the govt should be a net creator of money supply. Except that govts and the central banks worldwide have been captured by the rentier class, and so there is no check on their power. Even as they destroy wealth, they will come to own a larger and larger percentage of the remaining wealth, so they can’t lose. I can’t believe all this didn’t happen 8 or 9 years ago. So maybe they can drag it out farther, but the inevitable decline is coming someday, and all that remains to be seen is what kind of society we have when we come out the other side of it.

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