Global Financial Markets: Nouriel Roubini and Mike Milken Debate Where We've Been — Where We're Going
So where do we stand today?, asked moderator Matthew Winkler of Bloomberg News. Deleveraging has started in the private sector, said Roubini, but his real worry is that public debt is now climbing. He referred to Greece as the tip of the iceberg and warned that if sovereign debt is not tackled by nations around the world, the result will be either default or high inflation.
For the U.S. in particular, a $10 trillion deficit over the next decade is simply not sustainable. But gridlock is Washington is preventing any action: Republicans won't raise revenues, while Democrats won't cut spending. The bond markets are forcing an adjustment in Greece, but we have yet to wake up to the magnitude of the problem here. We're living a delusion, said Roubini: Americans want social spending, but they're not willing to pay for it.
Michael Milken felt strongly that the best guide to what's going on today is careful study of how things unfolded in 1973-74. Debt is cheap right now, and companies should be locking in low rates while they can. The recession has also forced cities, states and companies alike to find efficiencies in the way they do business.
The big question for Milken is whether the U.S. can muster the will to deal with long-term issues like unfunded pensions, Social Security, energy security and health care. There are solutions that are ready to deploy in all these areas if we're willing to act boldly. For example, focusing on prevention and cures — by tackling the obesity epidemic and investing heavily in the biosciences — can bring down health-care costs dramatically.
Both men agreed that ending U.S. dependence on foreign oil is crucial, and imposing a carbon tax is probably the way to go. They discussed how lifestyles in the U.S. have gotten out of whack, with Americans investing too much in oversized houses and not enough in education (a ratio that's reversed in Asia). According to Roubini, sprawl has had massive negative effects, and the federal government has to stop subsidizing housing and gasoline. It's more important, he said, to invest in human capital, capital stock and R&D.
Check out the full video for greater insight into the forces that will shape the global economy in the years ahead.