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Posts Tagged ‘Roubini’

Sea Change in the World Economy:

Posted by hkarner - 11. Juli 2014

 Global Macroeconomic Overview

RGE’s own David Nowakowski recently discussed the outlook for the global economy at an event for asset managers in London.

Roubini Scenarios

See the whole presentation SeaChangeInTheWorldEconomy1

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Musical Chairs at the FOMC

Posted by hkarner - 26. Juni 2014

By Nouriel Roubini, Sheryl King and Prajakta Bhide

Roubini Global Economics
May 29, 2014

  • Communication is one of the main tools at the Federal Reserve’s disposal in what will soon be the post-QE, post-Evans rule era, making it critical to assess the Fed’s ability to deliver a coherent monetary policy message. Even in normal years, the  FOMC Federal Open Market Committee) struggles to deliver a clear view about the economic and policy outlook as its voting members rotate so frequently. Here, we analyze the communication challenge presented by the significant turnover of FOMC members, exploring the views of individual members and assessing the implications for core policy decisions.
  • Bottom line: While the mean FOMC voter is more hawkish this year than in 2013, the view of the median FOMC voter – more important for decisions – has not changed much. However, there is still some potential for market volatility induced by disparate and relatively unknown voices at the Fed, particularly with regard to the new vice-chairman, Stanley Fischer. We believe that Fed Chair Janet Yellen, a consensus-builder with a solid grasp of the Fed’s communication challenge, will be largely able to counter individual hawkish noises. Still, delivering a clear forward guidance message under these circumstances will be tricky during a critical period of policy normalization. Ultimately, we believe Yellen’s dovish views will prevail, but Fed communication and forward guidance may become less explicit.
  • Market implications: We do not expect a repeat of the bond-market gyrations experienced last summer, when the Fed signaled the launch of QE tapering and then did not deliver, but increased market volatility around Fed communication is a risk. As the central FOMC view is dovish, the risks are skewed toward sudden jumps in Treasury yields and equity market sell-offs on market commentary from new Fed speakers, particularly Fischer and some of the new hawks in the FOMC.

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The Great Backlash

Posted by hkarner - 9. Juni 2014

Author: Nouriel Roubini  ·  June 2nd, 2014  ·  Project SyndicateRoubini Africa

In the immediate aftermath of the 2008 global financial crisis, policymakers’ success in preventing the Great Recession from turning into Great Depression II held in check demands for protectionist and inward-looking measures. But now the backlash against globalization – and the freer movement of goods, services, capital, labor, and technology that came with it – has arrived.

This new nationalism takes different economic forms: trade barriers, asset protection, reaction against foreign direct investment, policies favoring domestic workers and firms, anti-immigration measures, state capitalism, and resource nationalism. In the political realm, populist, anti-globalization, anti-immigration, and in some cases outright racist and anti-Semitic parties are on the rise.

These forces loath the alphabet soup of supra-national governance institutions – the EU, the UN, the WTO, and the IMF, among others – that globalization requires. Even the Internet, the epitome of globalization for the past two decades, is at risk of being balkanized as more authoritarian countries – including China, Iran, Turkey, and Russia – seek to restrict access to social media and crack down on free expression. Den Rest des Beitrags lesen »

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The Changing Face of Global Risk

Posted by hkarner - 1. April 2014

Date: 01-04-2014World Economic Forum Annual Meeting 2007
Source: Project Syndicate

NOURIEL ROUBINI

Nouriel Roubini, a professor at NYU’s Stern School of Business and Chairman of Roubini Global Economics, was Senior Economist for International Affairs in the White House’s Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank.

NEW YORK – The world’s economic, financial, and geopolitical risks are shifting. Some risks now have a lower probability – even if they are not fully extinguished. Others are becoming more likely and important.

A year or two ago, six main risks stood at center stage:

· A eurozone breakup (including a Greek exit and loss of access to capital markets for Italy and/or Spain).

· A fiscal crisis in the United States (owing to further political fights over the debt ceiling and another government shutdown).

· A public-debt crisis in Japan (as the combination of recession, deflation, and high deficits drove up the debt/GDP ratio).

· Deflation in many advanced economies.

· War between Israel and Iran over alleged Iranian nuclear proliferation.

· A wider breakdown of regional order in the Middle East.

These risks have now been reduced. Thanks to European Central Bank President Mario Draghi’s “whatever it takes” speech, new financial facilities to stabilize distressed sovereign debtors, and the beginning of a banking union, the eurozone is no longer on the verge of collapse. In the US, President Barack Obama and Congressional Republicans have for now agreed on a truce to avoid the threat of another government shutdown over the need to raise the debt ceiling.

In Japan, the first two “arrows” of Prime Minister Shinzo Abe’s economic strategy – monetary easing and fiscal expansion – have boosted growth and stopped deflation. Now the third arrow of “Abenomics” – structural reforms – together with the start of long-term fiscal consolidation, could lead to debt stabilization (though the economic impact of the coming consumption-tax hike is uncertain).

Similarly, the risk of deflation worldwide has been contained via exotic and unconventional monetary policies: near-zero interest rates, quantitative easing, credit easing, and forward guidance. And the risk of a war between Israel and Iran has been reduced by the interim agreement on Iran’s nuclear program concluded last November. The falling fear premium has led to a drop in oil prices, even if many doubt Iran’s sincerity and worry that it is merely trying to buy time while still enriching uranium.

Though many Middle East countries remain highly unstable, none of them is systemically important in financial terms, and no conflict so far has seriously shocked global oil and gas supplies. But, of course, exacerbation of some of these crises and conflicts could lead to renewed concerns about energy security. More important, as the risks of recent years have receded, six other risks have been growing.

For starters, there is the risk of a hard landing in China. The rebalancing of growth away from fixed investment and toward private consumption is occurring too slowly, because every time annual GDP growth slows toward 7%, the authorities panic and double down on another round of credit-fueled capital investment. This then leads to more bad assets and non-performing loans, more excessive investment in real estate, infrastructure, and industrial capacity, and more public and private debt. By next year, there may be no road left down which to kick the can.

There is also the risk of policy mistakes by the US Federal Reserve as it exits monetary easing. Last year, the Fed’s mere announcement that it would gradually wind down its monthly purchases of long-term financial assets triggered a “taper” tantrum in global financial markets and emerging markets. This year, tapering is priced in, but uncertainty about the timing and speed of the Fed’s efforts to normalize policy interest rates is creating volatility. Some investors and governments now worry that the Fed may raise rates too soon and too fast, causing economic and financial shockwaves.

Third, the Fed may actually exit zero rates too late and too slowly (its current plan would normalize rates to 4% only by 2018), thus causing another asset-price boom – and an eventual bust. Indeed, unconventional monetary policies in the US and other advanced economies have already led to massive asset-price reflation, which in due course could cause bubbles in real estate, credit, and equity markets.

Fourth, the crises in some fragile emerging markets may worsen. Emerging markets are facing headwinds (owing to a fall in commodity prices and the risks associated with China’s structural transformation and the Fed’s monetary-policy shift) at a time when their own macroeconomic policies are still too loose and the lack of structural reforms has undermined potential growth. Moreover many of these emerging markets face political and electoral risks.

Fifth, there is a serious risk that the current conflict in Ukraine will lead to Cold War II – and possibly even a hot war if Russia invades the east of the country. The economic consequences of such an outcome – owing to its impact on energy supplies and investment flows, in addition to the destruction of lives and physical capital – would be immense.

Finally, there is a similar risk that Asia’s terrestrial and maritime territorial disagreements (starting with the disputes between China and Japan) could escalate into outright military conflict. Such geopolitical risks – were they to materialize – would have a systemic economic and financial impact.

So far, financial markets have been sanguine about these new rising risks. Volatility has increased only modestly, while asset prices have held up. Noise about these risks has occasionally (but only briefly) shaken investors’ confidence, and modest market corrections have tended to reverse themselves.

Investors may be right that these risks will not materialize in their more severe form, or that loose monetary policies in advanced economies and continued recovery will contain such risks. But investors may be deluding themselves that the probability of these risks is low – and thus may be unpleasantly surprised when one or more of them materializes.

Indeed, as was the case with the global financial crisis, investors seem unable to estimate, price, and hedge such tail risks properly. Only time will tell whether their current nonchalance constitutes another failure to assess and prepare for extreme events.

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Emerging-Market Risk and Reward

Posted by hkarner - 2. März 2014

Date: 01-03-2014
Source: Project Syndicate

NOURIEL ROUBINIRoubini CC

Nouriel Roubini, a professor at NYU’s Stern School of Business and Chairman of Roubini Global Economics, was Senior Economist for International Affairs in the White House’s Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank
.

NEW YORK – One definition of an emerging-market economy is that its political risks are higher, and its policy credibility lower, than in advanced economies. After the financial crisis, when emerging-market economies continued to grow robustly, that definition seemed obsolete; now, with the recent turbulence in emerging economies driven in part by weaker economic-policy credibility and growing political uncertainty, it seems as relevant as ever.

Consider the so-called Fragile Five: India, Indonesia, Turkey, Brazil, and South Africa. All have in common not only economic and policy weaknesses (twin fiscal and current-account deficits, slowing growth and rising inflation, sluggish structural reforms), but also presidential or parliamentary elections this year. Many other emerging economies – Ukraine, Argentina, Venezuela, Russia, Hungary, Thailand, and Nigeria – also face significant political and/or social uncertainties and civil unrest.

And that list does not include the perilously unstable Middle East, where the Arab Spring in Libya and Egypt has become a winter of seething discontent; civil war rages in Syria and smolders in Yemen; and Iraq, Iran, Afghanistan, and Pakistan form a contiguous arc of volatility. Nor does it include Asia’s geopolitical risks arising from the territorial disputes between China and many of its neighbors, including Japan, the Philippines, South Korea, and Vietnam. Den Rest des Beitrags lesen »

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Back to Housing Bubbles

Posted by hkarner - 1. Dezember 2013

Date: 30-11-2013Roubini CC
Source: Project Syndicate

NOURIEL ROUBINI

Nouriel Roubini, a professor at NYU’s Stern School of Business and Chairman of Roubini Global Economics, was Senior Economist for International Affairs in the White House’s Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank.

NEW YORK – It is widely agreed that a series of collapsing housing-market bubbles triggered the global financial crisis of 2008-2009, along with the severe recession that followed. While the United States is the best-known case, a combination of lax regulation and supervision of banks and low policy interest rates fueled similar bubbles in the United Kingdom, Spain, Ireland, Iceland, and Dubai. Den Rest des Beitrags lesen »

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Bubbles in the Broth

Posted by hkarner - 1. November 2013

Date: 31-10-2013Roubini CC
Source: Project Syndicate, Nouriel Roubini

NEW YORK – As below-trend GDP growth and high unemployment continue to afflict most advanced economies, their central banks have resorted to increasingly unconventional monetary policy. An alphabet soup of measures has been served up: ZIRP (zero-interest-rate policy); QE (quantitative easing, or purchases of government bonds to reduce long-term rates when short-term policy rates are zero); CE (credit easing, or purchases of private assets aimed at lowering the private sector’s cost of capital); and FG (forward guidance, or the commitment to maintain QE or ZIRP until, say, the unemployment rate reaches a certain target). Some have gone as far as proposing NIPR (negative-interest-rate policy).

And yet, through it all, growth rates have remained stubbornly low and unemployment rates unacceptably high, partly because the increase in money supply following QE has not led to credit creation to finance private consumption or investment. Instead, banks have hoarded the increase in the monetary base in the form of idle excess reserves. There is a credit crunch, as banks with insufficient capital do not want to lend to risky borrowers, while slow growth and high levels of household debt have also depressed credit demand.

As a result, all of this excess liquidity is flowing to the financial sector rather than the real economy. Near-zero policy rates encourage “carry trades” – debt-financed investment in higher-yielding risky assets such as longer-term government and private bonds, equities, commodities and currencies of countries with high interest rates. The result has been frothy financial markets that could eventually turn bubbly. Den Rest des Beitrags lesen »

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The Eurozone’s Calm Before the Storm

Posted by hkarner - 2. Oktober 2013

Date: 01-10-2013Roubini CC
 Source: Project Syndicate, Nouriel Roubini

NEW YORK – A little more than a year ago, in the summer of 2012, the eurozone, faced with growing fears of a Greek exit and unsustainably high borrowing costs for Italy and Spain, appeared to be on the brink of collapse. Today, the risk that the monetary union could disintegrate has diminished significantly – but the factors that fueled it remain largely unaddressed.

Several developments helped to restore calm. European Central Bank President Mario Draghi vowed to do “whatever it takes” to save the euro, and quickly institutionalized that pledge by establishing the ECB’s “outright monetary transactions” program to buy distressed eurozone members’ sovereign bonds. The European Stability Mechanism (ESM) was created, with €500 billion at its disposal to rescue eurozone banks and their home governments. Some progress has been made on a European banking union. And Germany has come to understand that the eurozone is as much a political project as an economic one. Den Rest des Beitrags lesen »

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Autumn’s Known Unknowns

Posted by hkarner - 2. September 2013

Date: 01-09-2013Roubini CC
Source: Project Syndicate, Nouriel Roubini

NEW YORK – During the height of the Iraq war, then-US Secretary of Defense Donald Rumsfeld spoke of “known unknowns” – foreseeable risks whose realization is uncertain. Today, the global economy is facing many known unknowns, most of which stem from policy uncertainty.

In the United States, three sources of policy uncertainty will come to a head this autumn. For starters, it remains unclear whether the Federal Reserve will begin to “taper” its open-ended quantitative easing (QE) in September or later, how fast it will reduce its purchases of long-term assets, and when and how fast it will start to raise interest rates from their current zero level. There is also the question of who will succeed Ben Bernanke as Fed Chairman. Finally, yet another partisan struggle over America’s debt ceiling could increase the risk of a government shutdown if the Republican-controlled House of Representatives and President Barack Obama and his Democratic allies cannot agree on a budget.

The first two sources of uncertainty have already affected markets. The rise in US long-term interest rates – from a low of 1.6% in May to recent peaks above 2.9% – has been driven by market fears that the Fed will taper QE too soon and too fast, and by the uncertainty surrounding Bernanke’s successor. Den Rest des Beitrags lesen »

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Nouriel Roubini Speaks at NYFA 2013: Is Africa’s Robust Growth Sustainable?

Posted by hkarner - 13. August 2013

Author: Nouriel Roubini · July 16th, 2013 ·RGE EconoMonitor

Over 600 business and political leaders gathered recently in Libreville, Gabon, to debate and help shape Africa’s road map. RGE Chairman Nouriel Roubini shared his perspective on what the future holds for this region and provided policy guidance.

As attendees looked at whether the increasingly robust economic growth in Africa is sustainable, Roubini talked about growth determinants, stressing the progress that the region has made and problems that remain:

“I would say that the point that Larry Summers made this morning about what are the determinants of long-term economic growth are important and valid. He spoke about the need for peace and no civil war; the need for education; the need for a fair use of natural resources; about having good governance; about using technology… And I would add as a sixth factor that determines long-term economic growth the demographic dividend; high population growth may be also beneficial. Now in all of these dimensions there 54 countries of Africa, probably now 55 with South Sudan, have made significant improvement compared to what was the situation two or three decades ago. So if you look at it in relative terms historically, certainly everything has improved. And that is why economic growth is stronger. But if you are thinking about it absolutely, what is happening across these dimensions thing are not that simple.” Den Rest des Beitrags lesen »

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