Tag: roubini

Roubini, Marx, Capitalism, Socialism, and Interventionism

Very nice discussion:

Words and language can hold a lot of power. If your task is to destroy the people’s desire for peace and individual liberty, and if you can convince them that the US system over the past century is what free marketers mean when they say ‘capitalism‘, then your job is pretty much done.

But today’s shifts in public opinion seem very clear to me, just from comments I gather here and there: Fewer and fewer people are buying this story. More and more are beginning to try and think for themselves, simply out of plain necessity.

I have been harping on this for about 5 years now: The key concept that public discourse is still missing, the one word that explains all of today’s economic and political troubles is Interventionism.

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China to Float Yuan More Freely – Roubini Predicts: Yuan Appreciation Against Dollar Unlikely – I Say: Yuan Has Already Begun Depreciating

Reuters writes China forex move could thwart U.S. hopes – Roubini:

China’s decision to move away from its currency peg might mean the yuan weakens against the dollar instead of strengthens as Washington wants, Nouriel Roubini, one of Wall Street’s most closely followed economists, said on Saturday.

China said on Saturday it would gradually make the yuan more flexible after pegging it to the dollar for nearly two years, a move that the U.S. government and others around the world have long been calling for.

“This is the first significant signal in years of a change in Chinese currency policy,” Roubini, best known for having predicted the U.S. housing meltdown, told Reuters.

But it remains to be seen how China would put the new system into practice including the composition of a basket of currencies that Beijing will use as a reference point for the yuan — also known as the renminbi — and the base date for that basket, he said in an e-mail.

“Since they have not changed the previous range for the band — plus or minus 0.5 percent — most likely on Monday China will allow the renminbi vs U.S. dollar to move,” said Roubini.

The yuan has risen sharply in recent months against the euro, which sank over Europe’s debt problems, so a stronger yuan could not be taken for granted, he said.

If the euro were to continue to depreciate, “the renminbi would have to be allowed to depreciate relative to the dollar, a paradoxical outcome,” Roubini said.

His comments echoed those of an adviser to China’s central bank on Saturday.

Li Daokui, an academic adviser to the monetary policy committee of the People’s Bank of China, told Reuters in Beijing that the yuan could depreciate against the dollar if the euro falls sharply against the U.S. currency.

Roubini, like other analysts, said a major strengthening of the yuan looked unlikely.

“Even if the Chinese were to allow a gradual renminbi appreciation relative to the U.S. dollar, the size of such appreciation would be modest over the next year, not more than 3 or 4 percent as the trade surplus has shrunk, growth is likely to slow down on China and labor/employment unrest remains of concern to the Chinese.”

For more on this see my own predictions on this particular matter.

July 2009 – China Pegging Yuan to Dollar Again?

The stabilization of the Dollar against the Yuan has almost coincided the reversal of the Dollar’s fall against other major currencies. It thus appears as if, since mid 2008, the Yuan/Dollar peg has been reinstated and continues to be in place as these lines are written. What is also noteworthy is that the US current account deficit has been declining sharply since then.

A first look at the above chart leads one to believe that Chinese and US authorities aimed at putting an end to the fall of the Dollar, and thus intervened accordingly. However, another possibility which I would like to propose is that the Dollar had fundamentally and truly begun to stabilize at the level of RMB 6.83 at that point and was actually in for a major revaluation upwards. Thus the current intervention by Chinese authorities could actually be aiming at a stabilization of its own currency at a higher level than the market would mandate.

Some points fundamentally support the thesis that the dollar should gain in value against the major currencies:

– Global deleveraging is driving investors from other currencies back to the Dollar
– Deflation hitting the US first, and other countries only later
– Imports into the US are falling rapidly
– Significant domestic spending sprees by the Chinese government

All this may indicate that if the Chinese government were to let the Yuan float freely at some point, it may actually drop significantly against the US Dollar. Such an event could possibly be the ignition for a significant Dollar rally in the years to come.

The Reuters article is also in line with something I pointed out recently:

An interesting side effect of the Dollar rally is what’s happening to Chinese exports. Since its currency is pegged to the US Dollar, the Yuan is strengthening against the Euro which is hurting the powerful Chinese export lobbyists.
…
Bottom line: The supposed Yuan devaluation everyone seems to be expecting, were the Yuan to be freely floated, is simply not gonna happen!

Luckily, such predictions are testable. Let’s see how we are doing so far. Let’s observe the direction the Dollar has begun to take against the Yuan:

dollar-yuan-06-2010

Let’s see if the trend holds up …

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Roubini on Europe: We Are Kicking the Can Down the Road

From Yahoo’s Tech Ticker:

With a $1 trillion bailout package for Greece and the other sick men of Europe, the EU and IMF spurred a huge global rally in stocks Monday, with the Dow rising 405 points, its biggest gain since March 2009.

The massive bailout prevented “another systemic seizure of the global financial system” and, “in the short run, markets are happy we’re not going to have another global meltdown like Lehman,” says NYU professor Nouriel Roubini, co-author of Crisis Economics.

But in the long run, Europe has just “kicked the can down the road,” Roubini says, agreeing with our earlier guest Richard Suttmeier.

Even $1 trillion isn’t enough so solve the “fundamental questions” facing Europe, the economist says, citing the following:

* — Even in Europe, There’s No Free Lunch: All of the bailout money is conditional on countries approving what Roubini calls “massive fiscal consolidation,” i.e. big austerity packages like Greece’s parliament just passed. Such measures mean fewer public sector jobs (and lower salaries for those who remain) and higher taxes in countries where a lot of people work for the government and already pay relatively high tax rates. “Politically can they do that…or will there be riots and strikes that are going to limit” fiscal austerity measures, Roubini wonders.
* — Tough Love Hurts: Raising taxes and cutting government spending should help alleviate the short-term debt crisis in Europe’s so-called PIIGS but will also likely lead to recession, if not outright deflation. “That will make it harder to force austerity” on the public, he says. There’s already violence and rioting in the streets of Athens. “The question is: Will we see the same thing in, for example, Lisbon, Madrid [and] throughout the euro zone?”
* — No Easy Way Out: One reason the European Union is in this mess is because few of its countries are able to compete in a global economy, especially since they lack the ability to deflate their currency, the economist says. Considering it took Germany 15 years to restructure its private sector so unit labor costs came down low enough to compete globally, nations like Greece, Portugal and Spain face a long, hard slog even if they embark upon such painful programs immediately.

So what does all that — and the political pressure against more bailouts in Germany — mean for the future of the euro and the EU itself?

In late April, Roubini said “in a few days, there might not be a euro zone for us to discuss,” at the Milken Conference.

In the accompanying clip, the founder of Roubini Global Economics says he was “just joking” about that dire prediction, which potentially contributed to the recent rout in Europe. But expect “volatility in economies and markets” is going to be with us for the foreseeable future, Roubini says, offering cold comfort (and an odd sense of humor).

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Roubini Sees Risk of Double Dip Recession

Reuters writes:

Nouriel Roubini, one of the few economists who accurately predicted the magnitude of the world’s recent financial troubles, sees a “big risk” of a double-dip recession, according to an opinion piece posted on the Financial Times’ website on Sunday.

Roubini, a professor at New York University’s Stern School of Business, said it appears the global economy will bottom out in the second half of this year, and that U.S. and western European economies will likely experience “anemic” and “below trend” growth for at least a couple of years.

Yet he warned that policymakers face a “damned if they do and damned if they don’t” conundrum in trying to unwind their massive fiscal and monetary stimuli to keep the global economy from toppling into a depression.

He said that if policymakers try to fight rising budget deficits by raising taxes and cutting spending, they could undermine any recovery.

On the other hand, he said if they maintain large deficits, worries about excessive inflation will grow, causing bond yields and borrowing rates to rise and perhaps choking off economic growth.

Roubini said another reason to worry is that energy, food and oil prices are rising faster than fundamentals warrant, and could be driven higher by speculation or if excessive liquidity creates artificially high demand.

He said the global economy “could not withstand another contractionary shock” if speculation drives oil rapidly toward $100 per barrel. U.S. crude oil futures traded Friday at about $73.83.

Roubini said the anemic growth he expects would follow a couple of quarters of rapid growth, as inventories and production levels recover from near-depression levels.

This is more or less consistent with my long term outlook.

Thus the long term outlook for the US economy is the fate Japan took: A long lasting correction supercycle with one failing “stimulus” program after another, and with on and off periods where the economy slips out of and back into recessions from time to time.

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