Roubini in Australia
by Peter Switzer
The famous Dr Doom — Nouriel Roubini — is in Australia for the famous Diggers and Dealers mining conference in Kalgoorlie and again he is peddling his bad news warnings. His latest is to beware a double dip recession (DDR)!
He is not the only expert to say the DDR is a chance. Some weeks ago on SWITZER on Sky News Business Channel, Dr John Hewson said this was possibility.
But while Hewson put this forward as something that can’t be ruled out, given the magnitude of the financial and economic collapse in 2008, doomsday merchants like Roubini seem to be talking down prospects as it appears that they have overstepped the mark in going pubic with negative predictions.
As someone who has been a cautious optimist, who thinks we are in with a good chance of muddling through this economic challenge, the big call forecasters often don’t get held accountable for their wrong calls. However, they are often acclaimed for their big right calls.
Roubini was saying from 2004 that a housing bust in the USA was on the way and as we know this resulted in the stock market decimation from October 2007. He didn’t identify the problems of credit default swaps or the shonkiness of ratings agencies that failed to rate risky assets properly.
America is at the core of the global problems and Roubini was smart enough to see this. He was also smart enough to see that debt was getting out of control in the USA — a place where you can secure NINJA loans. These are loans made available to people with no job, no income and no assets! And to make matters worst, US home loans are non-recourse, which means debtors can throw their keys in walk away from the loan.
Roubini is a smart Harvard economist and the Americans have a dumb home loan system that had to end in tears one day, and we all paid the price. It was no surprise he made predictions of a housing bust way back in 2004.
But this does not make him a genius to whom we should give too much respect for his predictions. Sure, government debt will come back to hurt us. Yes, interest rates will rise and there will be casualties — rising interest rates always hit the over-borrowed. And yes, inflation will eventually be a problem but inflation often is a problem.
Guys like Roubini can’t get over the fact that the world has dodged another Great Depression and ended up with a Great Recession. The stock market’s resilience confirms my claim and the economic data is gradually adding weight to the story.
Unemployment in the USA will take time to fall, but it always does after a recession. Be careful of Roubini-types — 2010 will be a slow recovery year and then 2011 will, like Federal Reserve Chairman Ben Bernanke predicts, be a faster growth year. Then we could see both inflation and interest rates head higher, but — so what — that always happens.
Roubini did say at the Kalgoorlie conference that Australia is in a better position than most industrial countries because of our China links and this is what the RBA and yours truly have been saying for some time. It explains why I have been a cautious optimist and nothing has changed to make me change my mind.
The stock market will keep rising, and I expect a pullback but I don’t know when, so I will keep buying companies that I know in five years time will be a lot dearer than they are today. Beware economists bearing ‘gifts’ of prophecies of doom.
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Published on: Tuesday, August 04, 2009blog comments powered by Disqus