Dr. Doom or Dr. Realist?
2 years ago, I have to admit that I had never heard of Dr. Nouriel Roubini. Now I’ve “sat in” on some conference calls that he has done, read anything of his I can, and follow him on Twitter. As Paul Kedrosky told me the other day, “Not only is Nouriel smart, he’s a really nice guy!”
A couple of interesting “highlights” from this Newsweek interview:
- He agrees that the rate of decline is going to slow down, but while others think growth will be positive in 2009, he doesn’t see it until 2010.
- He’s less worried about a depression than he was 6 months ago. That’s a good thing.
- He believes that banks are going to have to be “taken over” and cleaned up and we’ll find out more on that on May 4.
- He has some interesting and disconcerting things to say about China and their long term appetite for the US dollar and for Treasuries. A topic for another day but given his track record, don’t forget about it…..
Tom Vanderwell
Economist Nouriel Roubini: ‘I Am Dr. Realist’ | Newsweek Business | Newsweek.com
The rate of economic contraction you have seen in the last two quarters—6 percent annualized—is going to slow down. The optimists are already talking about the “green shoots” of spring, about economic activity becoming positive. [They say] we will have positive growth in the third quarter, and in the fourth quarter we will grow 2 percent over the previous quarter. They expect that next year, growth will go back to above 2 percent.Compared with this optimistic consensus, I believe that the rate of economic contraction is going to slow from minus 6 percent in the last two quarters to minus 2 percent by the fourth quarter. Next year, I believe that the growth rate is going to be 0.5 percent for the U.S. average. Even if we are technically out of a recession, we are going to feel like we are in a recession. The bottom of the economy is not going to be in three months, but rather toward the beginning or middle of next year.
Six months ago I was more worried about an L-shaped near depression. Today, after the very aggressive policy actions taken by the U.S. and other countries, the risk of that near-depression L has been reduced from 30 percent to 15 or 20 percent. We are instead in the middle of a U.
And on the banks, I believe after the stress tests it is going to be obvious that even some of the largest banks are so fundamentally in trouble that you cannot buy their toxic assets. You need to take over these banks on a temporary basis, clean them up and then sell them back to the private sector
