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Roubini: "The US Economy Is Unsustainable"
Yesterday Nassim Taleb said that his primary concern about an upcoming "Black Swan" is a failed Treasury Auction. This is precisely what Zero Hedge has been concerned about for the past year, although we feel that this event will likely be at least marginally telegraphed, either in the form of Direct Bidders taking down close to 50% of each auction (with the Primary Dealers monetizing the balance), and an accelerated flattening of the yield curve. Last night, Roubini, who has apparently thrown away the mantle of moderation and is back to his gloomier ways, said that he worries "that with a trillion deficit this year and next year, 2012, and for as far as the eye can see, eventually, not this year, but the next year, the markets are going to wake up and say, this is unsustainable." In other words whether via the Treasury market, or some other way, at some point the balance will shift from one where the market still believes that reserve currency is enough of a backstop to prevent the collapse of the US, to a regime where incremental bailouts will be seen as negative. That moment will be true black swan, and the beginning of the end of the great US experiment.
Back to Rooubini, who in his last night's interview with Fox Business' Neil Cavuto is about as bearish as we remember him from the doom and gloom days of early 2008.
On Greece being the tip of the iceberg:
“In my view what is happening in Greece is just the tip of an iceberg. With private debt in many parts of the world, we socialize these private losses. Now with large budget deficits in Europe, in Japan, in the United States. The bond market vigilantes have woken up in Greece, in Portugal, in Spain.
At some point they're going to wake up in the U.K., in Japan, in the United States. We're running a 3.5 budget deficit. It is obviously over time not sustainable.”
On why there has not been any market discipline:
“The Fed has near zero rates. There is low growth. There is still deflation. So for a number of reasons, interest rates are still low. That is why there is no market discipline. This is unsustainable. There is going to be market pressure and we will be forced to do the tough adjustments.”
On how the US fiscal problems will cause high inflation:
“In a country like the U.S. where you can monetize the budget deficit, run the printing presses, monetizing the fiscal deficit eventually leads to inflation. So we're not going to have a default in the United States, that is not the option on the table. But we could have high inflation if we don't fix our fiscal problems.”
On possible riots in the US:
“Well, we have a social safety net that means that unemployed people and poor people get some income, so you're not having so far riots in the streets.”
On the implicit debt being huge:
“You have a federal deficit problem. A state and local problem. You have unfunded liabilities of Medicare, Social Security. And you have also unfunded liabilities of state and local government pension funds. You add it all together between the official debt, the implicit one, the bill is huge.”
On the need to raise non-distortional revenues:
“The official numbers suggest about $9 trillion budget deficits for the next decade. Even with reasonable assumption about economic growth, at some point we have to reduce spending, we have also raise some kind of non-distortional revenues.”
On Governor Christie’s plan to cut spending:
“If I had to make a choice at the margin, it is better to cut the budget deficit on the spending side…the size of the deficit is such that realistically the two parties will have to accept -- the Democrats, spending cuts, and also the Republicans will have to realize that some increase in revenues, want to limit as much as possible, is going to be needed to shrink over time, this deficit.”
On the need for a VAT tax:
That is why we have to cut the fat of the government first. We have to reduce the inefficiencies.”
“Realistically down the line we'll have to raise revenues. In my view, there are less distortional ways of raising revenue. We don't want to increase income taxes, capital gains, dividends, and other things of this sort. Probably introducing down the line a value-added tax, it's less distortionary, an indirect (ph) tax will be the right way of doing it over time…we have to fill this gap.”
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they can't keep spending without concern unless they can keep borrowing at low rates.
and borrowing at low rates is going to change unless their spending habits change.
These misguided fools will do whatever they want regardless of the outcome. I think most believe what they are doing is the right thing even though it is not.
Needless to say, I do not have any confidence in these people.
Roubini is desperately trying to claim back his rockstar status and make no mistake he is a shill for the administration (the need for higher taxes and reduced services). You have to look no further than the company he keeps and his former business partner, the esteemed Larry Summers, not to mention the officials he has endorsed e.g. Geithner, Bernanke et. al.
http://online.wsj.com/public/resources/documents/disclosure-LSummers0403...
http://www.businessweek.com/news/2010-01-26/roubini-supports-reappointme...
http://www.nydailynews.com/opinions/2009/03/25/2009-03-25_give_credit_to...
Roubini and Taleb are consistently the best big picture thinkers in this shitstorm - although Taleb isn't the most telegenic fellow in the world.
It's hard to find any realweak spots in their reasoning and arguments in this and related areas. I have the utmost respect for both of them.
"Gold she is in, er how you say, a bauble."
-Nouriel Roubini
Barbaric Relic...
It's not the US economy that's unsustainable - it's gov spending and taxation. Increasing taxes just postpones the inevitable - like resorting to the printing press. If you extend Roubini's logic, you could wind up with a social system that takes virtually everything from those who produce and spends all its resources. Is that sustainable?
He certainly shares values that could be associated with a socialist perspective
http://finance.yahoo.com/tech-ticker/article/222719/Roubini-Obama-Right-...
Unless they repeal income tax.. they can take the VAT tax and cram it up
their collective asses!!!
First of all, let's talk about debt. While leverage works well when things are going up, it obviously magnifies problems when things are going poorly. In some sense, assets are contingent, but debt is forever. Here in America, total debt compared to GDP now stands at around 280% to 300%. (By definition, these numbers are estimates, since it's impossible to arrive at a precise figure, but the latter is not needed in order to get the gist of what's going on.)
This is the highest debt-to-GDP ratio that the country has ever seen. By my calculations, as we exited 1929, debt-to-GDP was about 200%, though it did rise pretty dramatically while we were in the Depression, to about 300%,. But by 1950 or so, the debt-to-GDP ratio came in at about 150%. It rose to some 220% in 1990. So obviously, our current ratio of total debt outstanding to GDP is the highest it's ever been (the Depression excepted).
soooooooooooooooooo! whats new? nothing?
Purchasers of last resort? 0% Fed Window ='s always a purchaser at the ready?
The only difference between then and now (1929, 1990) is that more people are aware... which is bad becuase the Sheepeople are easily spooked! but there is no difference between what we have borrowed against in the past, which was thin air or NOTHING! than there is today, when we borrow against thin air or NOTHING!
The end is not near.
NACHO RECOVERY:
http://williambanzai7.blogspot.com/2010/05/nacho-recovery.html
THE COMING CRASH: USURY AND THE IRRELEVANT CHURCH by Damon Vrabel | Canada Free Press (excerpts)
May 12, 2010--It’s been a wild couple of weeks—increasing unemployment, Greek debt crisis, yet another ridiculous bailout, pressure on Goldman Sachs, accusations of commodities manipulation by JP Morgan Chase, and new freakish levels of market volatility that might be signaling the next phase of market collapse. The many day-to-day issues can leave us dazed and confused, so most people ignore them. Huge mistake.
They are all related to the most powerful force on earth that controls our lives because it is the very foundation of our society—usury. We are ruled not by governments anymore but by financial powers that use interest-bearing debt to exert control over governments, corporations, and people. Almost all other political issues with which we concern ourselves are secondary symptoms of or purposeful distractions from this larger narrative that is never reported by the Wall-Street-funded media. Sadly the church has remained silent as well.
Explaining the details can be extremely complicated, but the basic core to understand is that the US government issues no money. Instead all money comes from private banking institutions with interest attached...
More technically, the Fed and its Wall Street cartel banks like JP Morgan Chase and Goldman Sachs make billions by doing nothing but controlling our money. They have the monopoly license to create the core money in our system from holding US Treasury bonds on their balance sheets. These bonds represent the debt of the United States. Thanks to interest, the bonds pull a large portion of our wages to the banks. The primary purpose of the IRS is to take your wages to pay the interest back to the banks. In effect, Wall Street owns a good bit of your labor. And the more bonds they hold, i.e. the more debt the population is in, the more money they make thanks to the interest flows and the profits from gambling on your debt. The system is very much one of “us vs. them.” Such is the nature of monopoly power and usury...
It creates a two-tiered societal pyramid of money pushers on top vs. money users on bottom. The power differential is huge. Everyone is hostage... stuck building an invisible pyramid of monetary power.In such a system there is never enough money to pay back all the interest to the money pushers. The only solution is for the money users—government, corporations, individuals—to borrow more. This is the reason our debt continues skyrocketing to increasingly insane levels. It isn’t about politics, but the fundamental exponential math underlying the system—the users must borrow more and more to pay back interest and keep the system afloat. Such math is guaranteed to fail. Iceland and Greece have reached the point of failure. The rest of the Europe and the US will experience failure as well. Then we will see money and assets vacuumed up the pyramid by the money pushers—the banking establishment that owns the collateral and can take your property...
Our monetary system is a top-down controlling machine, not a free market. It is run not by government, but by the most powerful financial interests in the world… Total unfunded liabilities currently hidden on the government’s financials put each American in an extra $300,000+ in debt that they currently aren’t aware of. That debt comes from the fact that, again, our money comes from usury.
Since the bubble was built on usury, its very existence is immoral, and everyone who participates in it becomes infected. It is also flimsy because usury means the bubble is sustained by debt. Many are already aware of the hollowness of the bubble since it has destroyed the fabric of our communities and a sense of deeper meaning in life. But others are able to ignore that and focus on the material comfort. What will happen to them once the material comfort itself crashes? It will soon. Some market forecasters predict the final collapse of our debt system will be worse than the Great Depression. The math is clear—it will be worse. Just like Greece, we will then see Wall Street paying the government to crackdown on the people, cancel social programs, and take their assets from them to hand them over to the upper class behind the banks. That is the end result of usury—using debt to control others and take their assets so they have no equity...
“Silence is Betrayal”
This is the civil rights issue of the 21st century… a few money pushers vs. the great mass of users. The power of the bond market is getting ready to wreak havoc. We’re all in it together this time. As Martin Luther King said, “There comes a time when silence is betrayal… That time has come for us today.” Will the real church please speak up? (emphasis mine)
http://canadafreepress.com/index.php/article/23067
Can you explain whether the author thinks usury is bad, or a non-accountable, privately owned central bank controlling money, or both?
I don't see why if I have a valuable asset and you want to use it, even if it's to borrow my gold, why you shouldn't pay me interest.
Even in those weird sharia systems, some part of the profit, some benefit, is transferrred back to the provider of the financing.
Your logic explains how interest was first established as a legitimate business practice. But when nations lost their prerogative over the issue of money to private bankers and the proceeds from the issue of that money, it wasn’t long before usurers were dictating the terms of all agreements to the point where, as President Wilson said, “all our activites are in the hands of a few men.” The practitioners of usury are now able to control not only all financial transactions, but all social and creative activities of mankind. And the significant part is that Americans have never been given a choice. Their leaders, whom they can’t select under the present rigged Two-Party Primary system, sell them out to the usurers. And, now, as FDR said, “Behind the ostensible government sits enthroned an invisible government owning no allegiance and acknowledging no responsibility to the people.”
Regarding Vrabel’s comments, he said: “Explaining the details can be extremely complicated, but the basic core to understand is that the US government issues no money. Instead all money comes from private banking institutions with interest attached. At times in the past the US government issued real money for people to use—US notes and coins. But today all money comes from the Federal Reserve’s private banking system by putting the US government, i.e. 308,000,000 Americans, in debt. If the US government were not in debt to the banking system, the American people would have no money.
In short, the control of the government and all business is in the hands of financiers, the usurers. Herein lies the flaw in the existing monetary system.
And, let me ask. How much interest are savers "earning" on their "valuable assets" now that the banks can print their own?
j,
you said it true. an heirloom statement that everyone
alive today should contemplate and understand, should
be repeated until everyone is conscious of what it is they
are doing in the market, in their work, with their time in this
life, with their "money".
money is either a social bond or a social bondage and they
are very different. much of "our" politic etc. centers around
the idea of creating narratives to frame "bondage" as a natural
social bond, the sickness of our time or maybe a larger time
or maybe our stage of development or evolution or enlightenment?
.
again, very well said, imho. have a cupcake.
ps. i believe interest originated in an agricultural arrangement where
by seed, grain, was paid and stored with the "sovereign"/social authority.
this could be used to plant or pay debt, depending on the circumstances,
but it served a social function always. also, the earth/ground, field
produces excess, many biological entities do this in nature. fiat dollars
created in debt do not reproduce by themselves. the one with the
generative power of these debts/dollars is the authority/sovereign. this
must be the people or it's representative, otherwise the people live
in bondage actually unable to know any real natural social bond.
pps. they cannot control intellectual resistance, creative activity/power of man.
this is impossible. they can only obfuscate, complicate, posture and otherwise do
endless reporting and dancing around the facts and the truth. but ......
there comes a time. the paradox of thrift, ridiculous ponzi logic.
and perhaps the finest part of man only manifests when he is put to
the test, under fire as all great works and ideas seem to be born of
some torment or direct challenge to his survival. as in "necessity is
the mother of invention".
tasty comment. with a little tweaking and the spacing as is, it could almost read like a Wordsworth.
me dont trust Roubini....
"Gold is still a barbaric relic"
sorry I forgot the attribution for that quote
Nouriel Roubini
Gold is still a barbaric relic
http://www.nytimes.com/2009/05/14/opinion/14Roubini.html?_r=2
Zombies the new walking dead
This is from todays Gartmen Report:
Earlier this week we called this
the “Zimbabwe-isation” of the global capital market,
where equities and gold move in tandem, one with the
other. This process continues, and the equities
markets around the world are beginning to understand
this phenomenon. At the moment, when it comes to
equity investment, nothing else matters. Earnings?
They mean very little: Economic data: They mean even
less: Market psychology? Well perhaps that is of some
modest importance, but trumping all is liquidity: Gold
up; currencies down; equities up… that’s the marching
order of the day the week and the month:
i don't understand the use of terminology here.
You can't 'plan for' and 'speculate upon' a Black Swan three years in advance.
It is, by definition, unanticipated and it's that 'something' that the 'market' didn't factor in.
Broken oil well = black swan
volcano = black swan
death of polish executive branch = black swan
flash crash = black swan
+1
Questions:
1. If dollars can be printed at will and backdoored to bidders, how can there be a failed auction?
2. If small investors have fled or been driven out of the equity markets, aren't the big volume sellers who can drive the markets down the same ones who have controlled the low volume upwards movements, and who will immediately drive them back up so they make profits?
3. Unless those in power hold or control the gold, what incentive is there for them to ever permit it to rise significantly, or serve as a medium for exchange, when they can control other mediums better?
I used to watch Neal Cavuto way "back in the day" when he was on CNBC in the afternoons. I think FOX is the perfect place for Neal's talents. Maybe he could co-host a show with Sarah Palin and they could both do voice overs of old interviews from the 1990s like it was being done "Live".
Lost respect for "rock star" roubini when he made those asinine remarks about Gold some time ago...
i think all that "na na' he's been getting courtesy his economic guru status has affected his noodle....
I have no idea actually what Roubini said about Gold, but if you are one of the many mesmerized by Gold I basically have 4 questions for you: The main reason to buy gold is you expect EXTREMELY hard times, or total chaos, yes??? In those extreme hard times what do you plan to do with your Gold?? Give 2 bars for a bowl of Chinese rice porridge?? Who will want gold during times like the Great Depression???
In total chaos, assuming gold is regarded as an exchange medium of high value, not only will you have to have a gun to protect yourself, but you will also have to be able to outgun gangs with many guns.
Yes, in total chaos we will have the good, the bad, and the ugly... guns needed by all
The question which should be asked is "what r u increasingly unable to buy with worthless debt coupons masquerading as "real money now, and what will u b able to do with them when their intrinsic value (zero) is revealed?"
let me worry about securing my real money and how it will b utilized/exchanged. i am certain ur concerns and obstacles will far outweigh those who possess Gold & Silver....
Thank you Tyler....:-) +1000
Roubini has one theme: The financial sector is so important you have to do anything to keep it in business. And that means sacrifices…and taxes…for the people. Roubini’s bottom line is you can’t take a chance on having the financial sector hurt. Roubini says we have to cut expenses and programs, but I noticed he’s not suggesting taking anything out of finance. IMO, he’s a one-trick pony anymore.
There is still deflation, says Roubini. Well, not price deflation…
Health Care Costs Rise by Largest Amount Ever – It’s all a part of the new economy, GIVE and TAKE by Nathan Martin
May 12, 2010—Income doesn’t seem to go as far as it used to? Family health care expenses are a large reason why. A study just released by Milliman Medical showed that their 2010 index for family medical expense rose to $18,074 from 2009’s $16,771, an increase of 7.8% or a record setting $1,303 on the year!
Milliman Medical Index 2010 (with charts) here:
http://www.milliman.com/expertise/healthcare/publications/mmi/pdfs/milliman-medical-index-2010.pdf
Their study adds up the total medical spending costs for the average family—more than $18,000. Medical costs have increased $4,692 per year over the past 5 years, an increase of 35%! This 35% annual increase since 2006 compares to a 4.9% growth in household income. Sustainable? I think not, it sounds more like bubble dynamics to me.
It gets even worse when viewed over longer time periods…
Since 2002 family medical costs have rising 96%. Have incomes kept up with that? Certainly not! Incomes and medical expenses are on two different curves, just as are income and debt. It’s certainly no coincident that debt has also grown over the same period—that is exactly how and why increases in medical costs, housing costs, automobile costs, etc., came about, it was financed. And now here we are, incomes in the same place, expenses soaring, debt saturated.
This year’s $18,000 annual medical spending compares to the median household income, according to the Census Bureau, of $52,175. That equals a staggering 34% of median household income.
However, of that $18,000+ that is spent, employers pay for 59% of it and following three consecutive years of individuals paying an increasing share of the expense, 2010 actually saw the employer’s share increase slightly.
The 41% of the cost paid by employees equals $7,330 per year, or “only” 14% of household income. In 2006 employee share was 38% of the total…
Universal health care going to keep costs down? Please…
http://economicedge.blogspot.com/
Anything the govt. touches inflates prices, that is a constant of the universe.
Roubini is simply laying the groundwork for the VAT tax which will be brought online in the first half of 2011.
A new crisis of some sort (financial or war, perhaps both) will be used to precipitate the necessity of the VAT. To sweeten the deal, there will be promises of lower income taxes or perhaps a simplified tax code to come in the out years, but that will never come to actual fuition as there will always be another critical funding need pushing the sweetner to the right though time.
Exactly, just as he helped lay the groundwork for Bernanke’s reappointment.
i bet you're Spock good at chess.
I want to learn about T auctions and this "direct bid" stuff to watch it myself. How do we know WHO's buying our treasuries?
Reading his book right now...OMG who knew!!!
How can there be a failed treasury auction when the banks can borrow from the fed, in the repo market, at zero percent interest, using any type of crap asset as collateral?
What's to stop this circle jerk?
Thank you Brett, this is all really so much simpler than we sometimes make it out to be.
a VAT tax is going to help?? The Federal Government is so over-obligated and inept at spending any money. The money should remain in the state,county and city and the FEDs should stop trying to centralize everything including money dispersal.
Economic growth and a VAT tax are not going to mesh at all. In California I have a 9.85% sales tax. Add a VAT and it's over 10%-11%.
You think I'm going to buy a new FORD if they tack on another 11%-and you think I'm going to take the debt on to do that?
I'm not a Reaganite, but that sounds like what you are 100% not supposed to do if growth is deflating.
The STATES need to clear out employees and renegotiate the muni debt. There is not reason that state employees get a huge pension,a high salary and job security when the private sector can do it more efficiently and with less future obligations. BULLCRAP
http://www.youtube.com/watch?v=4c_YaKVj0AM&feature=related
.
ha!