Economist Nouriel Roubin Slams U.S. Economy

by John M. Curtis
(310) 204-8700

Copyright July 23, 2012
All Rights Reserved.                                         

             Wall Street’s biggest critic, 53-year-old New York University Stern School economist Nouriel Roubini, warns that the U,S. stock market looks ready for another 2008-like crash.  Roubini’s claim to fame was predicting the 2008 market crash that saw the Dow Jones Industrials nosedive from 14,000 July 17, 2007 to about 6,800 March 3, 2009, one of the worst collapses since the legendary crash of 1929.  Roubini expects U.S. growth to drop through 2012, spelling a major market correction sometime in 2012 or 2013.  “Even this year, the consensus got it wrong, expecting a recovery to annual GDP growth of better than 3 percent,” wrote the founder of Roubini Global Economics.  Roubini knows, whether the economy grows at 2%-3%, it doesn’t mean Wall Streets plans go under.  Roubini’s been predicting another market crash since the Dow hit 13,000 Feb. 21. 

            For economic prognosticators like Roubini to have any credibility, they can’t simply predict future crashes while markets climb to respectable levels.  Roubini’s always good for a negative forecast but rarely admits he frequently misses positive market trends.  Given the economy in a post-2008-crash era, if you asked “Dr. Doom” if he saw the Dow at 8,000 on President Barack Obama’s Inauguration Day hitting 13,000 three years later, he’d tell you you’re crazy.  Yet the market did just that, rising over 70% since Barack took office.  If you ask GOP presidential nominee Mitt Romney about the Dow’s performance under Obama, he’d deny any improvements.  He routinely tells audiences around the country that Obama’s a complete failure when it comes to the economy.  Mitt never gives Barack kudos for any foreign policy or economic accomplishments.

            Roubini’s consistently negative views give him a good hedge against potential market downturns.  When the market rises over 10%, it’s a good bet there will be profit taking at some point.  Roubini interprets any Wall Street profit-taking as a sign of a new bear market.  Savvy investors know that Wall Street has its ups-and-downs, locking in profits after sizable gains.  Roubini now talks of a new “fiscal cliff” where government receipts evaporate from high unemployment and expiring Bush tax cuts.  What Roubini doesn’t factor in is that Obama has already signaled he plans to continue middle class tax cuts for taxpayers earning up to $250,000 a year. “Of course the drag will be much smaller, as tax increases and spending cuts will be much milder . . .” said Roubini, already hedging his bets.  He sees a 2012 or 2013 growth rate of about 1.5%, or 50% of current government estimates.

                 Roubini sees the fiscal cliff or shortfall in government receipts causing more drag on future GDP growth.  What Roubini doesn’t figure into the equation is Wall Street continuing to ratchet up share prices.  Today’s summer sell-offs reflect more profit-taking by the nation’s biggest funds, now seeking to lock-in profits before the next buying opportunity.  When funds buy back into the market, Roubini knows that share prices rise, together with government tax receipts.  Nothing helps economic recovery more than a thriving U.S. stock market.  Roubini’s assumptions are all based on lowered earnings killing the U.S. stock market.  He doesn’t consider how investment banks like Goldman Sachs operate to keep pushing the stock market higher.  They can’t make their profits unless they continue driving the market up, then allowing clients to take profits at the propitious time.

            Roubini sees expiring U.S. tax cuts creating a $1.4 billion shortfall, robbing consumers of the needed cash to fuel the consumer economy.  Again, what Roubini misses is the momentum effect of today’s employment picture that shows a slower trend over the summer months that should pick up in the Fall.  Roubini, like Romney and other GOP conservatives, warned Obama against bailing out Detroit.  U.S. car sales continue to be a bright spot in the economy, with Ford announcing July 12 that they will add 12,000 more jobs in 2013.  With the Supreme Court upholding the president’s health care overhaul June 28, Roubini ignores the expected expansion of the health care industry, promising to add thousands of new jobs.  Less unemployment translates into lower budget deficits and more government tax receipts, fueling better corporate earnings and a thriving stock market.

            Making a case for another 2008 crash, Roubini complains the Federal Reserve Board has run out of tricks to boost the economy.  “The U.S. Federal Reserve will carry out more quantitative easing this year, but it will be ineffective; long-term interest rates are already too low, and lowering them further would not boost spending,” said Roubini forgetting that today’s lower rates give consumers more cash to keep spending.  Fed Chairman Ben S. Bernanke has done a masterful job of priming the pump, keeping banks flush with cash and giving consumers the best shot at spending money.  Roubini sees sovereign debt problems in the Eurozone creating an ongoing drag on Wall Street.  Europe’s economic woes are also U.S. gains, as many investors return to the U.S. dollar over the euro.  As long as the Fed and Goldman Sachs keep the big funds buying equities, the U.S. economy will do just fine.

John M. Curtis writes politically neutral commentary analyzing spin in national and global news.  He's editor of OnlineColumnist.com.and author of Dodging the Bullet and Operation Charisma.

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