A tour de force from Nouriel Roubini
May 02, 2011
He may have been nursing a sore throat, but that didn't slow him down for a second. Nouriel Roubini was off to the races in this one-on-one session at the 2011 Global Conference, offering his take on currency markets ("a beauty contest . . . for who is least ugly"), whether we're in a new Gilded Age (yes), and how to avoid a "fiscal train wreck."

As Bloomberg's Tom Keene remarked dryly, "When your Econ 101 students hear this, do five of them immediately become theater majors?"

Indeed, Roubini's analysis was fast and furious; don't miss the full video. He believes that an orderly debt restructuring, with holders taking haircuts, would still be preferable for Europe, since disorderly defaults are a worse possibility. Since bank debt was nationalized in nations like Ireland, it is now crushing growth. Debt has gone from private to public to super-national entities - and no one is coming down from the moon or Mars to bail us out from here, he said.

Growth will continue to be sluggish in the developed world, he predicted, and if oil prices rise another 20 percent or so, we could see multiple countries enter a double-dip.

With so much risk looming and so many interconnections, we need coordination among world governments. But Roubini sees the opposite happening. Nations are going their own way, and in the developed world, weak or divided governments are handcuffed from taking strong action.

The "bond market vigilantes" have woken up on the European periphery, but the U.S. is staving off its day of reckoning. Because of the advantage of having the dollar as the world's reserve currency, it can still monetize its debt.

But we are kicking the can down the road. Roubini is worried about political gridlock, and with an election season looming, he doesn't see any action on the deficit before 2013. Both parties need a reality check, he said. The U.S. is going to have to reduce spending and raise revenues - and if we don't take action, the bond market may force the government's hand.

Still, he offered a ray of optimism note by recalling a quote from Winston Churchill: "You can always count on Americans to do the right thing - after they've tried everything else."