"It’s going to go crashing down, in an ugly way.", says Roubini

Nouriel Roubini has been one of the Keynesian Fools to see the problem well in advance, and even if he has no solutions to the problem except the usual Keynesian stimulus and deficit spending, he is good nonetheless at spotting the problems. He thinks more regulation is required where the solution is just turning off the tap of limitless flowing dollars (End the Fed!).

Here are some excerpts from his the latest interview with Index Universe.com with which I do happen to agree:

In my view, rising commodity prices are not justified by the fundamentals.

There’s a huge bubble, because we have zero rates in the U.S., zero rates around the world and a huge carry trade. Everyone is borrowing at zero interest rates in dollars and getting a capital gain because the dollar is weakening, so they are borrowing at negative rates. And then they invest in risky assets: commodities, equities, credit. We’re creating a bigger bubble than before.

It’s going to go crashing down, in an ugly way. That’s the basics of the argument.

[...]

I don’t know when the correction is going to occur, it could be a while longer, but eventually it will be a pretty ugly correction, across many different asset classes.

[...] So there’s no inflation, and there’s not going to be for the time being. Yeah, it [Gold] can go above $1,000, but it can’t move up 20-30 percent unless we end up in a world of inflation or another depression. I don’t see either of those being likely for the time being. Maybe three or four years from now, yes. But not anytime soon.

Even Keynesians call it "Irrational Exeburance"

There are a few Keynesian fools who saw the problems — even though they are suggesting the wrong cure. Among them, Roubini, Stiglitz and Soros. Not sure many others did.

Interestingly, the 3 of them are quoted in this Bloomberg report.

Oct. 6 (Bloomberg) -- Nobel Prize-winning economist Joseph Stiglitz said U.S. unemployment will keep rising and should be the focus for policy makers, and gains in the stock market show investors have been “irrationally exuberant” about a recovery.

“There’s a lot of risk going ahead of some big bumps,” he said yesterday in a Bloomberg Television interview from Istanbul, citing housing, commercial real estate and consumers’ inability to pay off credit cards because of job losses. “There’s a very big risk that markets have been irrationally exuberant.”

His comments echo New York University Professor Nouriel Roubini’s view that “markets have gone up too much, too soon, too fast,” and billionaire George Soros, who warned yesterday that America’s economic recovery will be “very slow.”
[...]
It’s “pretty clear that the situation will continue to get worse,” Stiglitz said
[...]
Roubini, who accurately predicted the financial crisis, warned in an Oct. 3 interview in Istanbul of “the risk of a correction, especially when the markets now realize that the recovery is not rapid and V-shaped, but more like U-shaped.”

Roubini is WRONG

Nouriel Roubini was on Bloomberg and the interview is very interesting because as usual, he has a very good view on the economic issues. I always listen what he has to say ; but only because I am interested in his forecasts, not because I want to hear about his solutions to the problem.

He saw the collapse coming, but now, he is trying to offer solutions, and — being a Keynesian — his solutions are a lot worse than the actual problems.

Points of interest:

• Gold is rising not because of the fear of inflation but of sovereign defaults.
  My comment: they really are the same: sovereign countries default when they don't want - or can't - print off their debt.
• Bigger banks in the Eastern countries are too big to bail out as their size is several times the GDP of these countries. This would force the EU to act and for example he suggests, taxes could go up in Germany to pay for the bailouts.
  My comment: I think Roubini is confused , since most of the Eastern European Countries ARE NOT YET part of the Eurozone, and are in deep trouble. Only 16 countries are currently in the Eurozone. Some big European banks have lent a lot to ex-USSR countries, but that's another problem.
  
• Fiscal stimulus is required to help collapsing private demand, and this is what got the US out of the Great Depression.
  My comment: It's actually quite the opposite of what happened, and the US got out of the Great Depression in spite of the destructive power of Hoover and Roosevelt. Check for yourself by reading Rothbard's America's Great Depression.
• The US is ahead of the curve because they are spending a lot and a lot.
  My comment: again, this is non-sense, they are not ahead of anything, they are in very deep trouble, and they are going deeping and deeping into the whole, and are trying to take as many countries are as they can with them, by borrowing from them and hence destroying their savings, since the US will not be able to pay back what they borrow.

I recommend watching the interview nonetheless.

Roubini: US GDP widely overstated?

"The official headline for U.S. Q1 GDP growth says a positive 0.6% growth but the details are ugly and confirm that we are in a recession."

The details on the link...