Hello Tony >Hello Keith - Thanks for the article, but Mr. Roubini is not the >only one warning of imminent dangers in the US economy.
Indeed not, I've been hearing dire warnings for years, steadily gathering weight, but this one seemed quite succinct. >One (David Walker formally from GAO) was even part of the US >government - See link below. > >http://www.pgpf.org/ Thankyou. Paul Craig Roberts is another, formerly an Assistant Secretary of the Treasury in the Reagan Administration, aka the "Father of Reaganomics". Eg: http://www.informationclearinghouse.info/article18787.htm Impending Destruction of the US Economy :-( Other trouble is that when the US farts the rest of us get ulcers. More Roubini: http://jp.youtube.com/watch?v=51SxmcaKJIw Nouriel Roubini's Global EconoMonitor http://www.rgemonitor.com/blog/roubini More Roberts: <http://www.mail-archive.com/search?q=%22Paul+Craig+Roberts%22&l=sustainablelorgbiofuel%40sustainablelists.org> Best Keith >Tony Marzolino >Berkshire NY > >--- On Mon, 8/18/08, Keith Addison <[EMAIL PROTECTED]> wrote: > >From: Keith Addison <[EMAIL PROTECTED]> >Subject: [Biofuel] Meet the Economist Who Thinks We're Doomed >To: biofuel@sustainablelists.org >Date: Monday, August 18, 2008, 1:08 PM > >Meet the Economist Who Thinks We're Doomed > >By Stephen Mihm, The New York Times > >Posted on August 18, 2008, Printed on August 18, 2008 > >http://www.alternet.org/story/95375/ > >On Sept. 7, 2006, Nouriel Roubini, an economics professor at New York >University, stood before an audience of economists at the >International Monetary Fund and announced that a crisis was brewing. >In the coming months and years, he warned, the United States was >likely to face a once-in-a-lifetime housing bust, an oil shock, >sharply declining consumer confidence and, ultimately, a deep >recession. He laid out a bleak sequence of events: homeowners >defaulting on mortgages, trillions of dollars of mortgage-backed >securities unraveling worldwide and the global financial system >shuddering to a halt. These developments, he went on, could cripple >or destroy hedge funds, investment banks and other major financial >institutions like Fannie Mae and Freddie Mac. > >The audience seemed skeptical, even dismissive. As Roubini stepped >down from the lectern after his talk, the moderator of the event >quipped, "I think perhaps we will need a stiff drink after that." >People laughed -- and not without reason. At the time, unemployment >and inflation remained low, and the economy, while weak, was still >growing, despite rising oil prices and a softening housing market. >And then there was the espouser of doom himself: Roubini was known to >be a perpetual pessimist, what economists call a "permabear." When >the economist Anirvan Banerji delivered his response to Roubini's >talk, he noted that Roubini's predictions did not make use of >mathematical models and dismissed his hunches as those of a career >naysayer. > >But Roubini was soon vindicated. In the year that followed, subprime >lenders began entering bankruptcy, hedge funds began going under and >the stock market plunged. There was declining employment, a >deteriorating dollar, ever-increasing evidence of a huge housing bust >and a growing air of panic in financial markets as the credit crisis >deepened. By late summer, the Federal Reserve was rushing to the >rescue, making the first of many unorthodox interventions in the >economy, including cutting the lending rate by 50 basis points and >buying up tens of billions of dollars in mortgage-backed securities. >When Roubini returned to the I.M.F. last September, he delivered a >second talk, predicting a growing crisis of solvency that would >infect every sector of the financial system. This time, no one >laughed. "He sounded like a madman in 2006," recalls the I.M.F. >economist Prakash Loungani, who invited Roubini on both occasions. >"He was a prophet when he returned in 2007." > >Over the past year, whenever optimists have declared the worst of the >economic crisis behind us, Roubini has countered with steadfast >pessimism. In February, when the conventional wisdom held that the >venerable investment firms of Wall Street would weather the crisis, >Roubini warned that one or more of them would go "belly up" -- and >six weeks later, Bear Stearns collapsed. Following the Fed's further >extraordinary actions in the spring -- including making lines of >credit available to selected investment banks and brokerage houses -- >many economists made note of the ensuing economic rally and >proclaimed the credit crisis over and a recession averted. Roubini, >who dismissed the rally as nothing more than a "delusional >complacency" encouraged by a "bunch of self-serving >spinmasters," >stuck to his script of "nightmare" events: waves of corporate >bankrupticies, collapses in markets like commercial real estate and >municipal bonds and, most alarming, the possible bankruptcy of a >large regional or national bank that would trigger a panic by >depositors. Not all of these developments have come to pass (and >perhaps never will), but the demise last month of the California bank >IndyMac -- one of the largest such failures in U.S. history -- drew >only more attention to Roubini's seeming prescience. > >As a result, Roubini, a respected but formerly obscure academic, has >become a major figure in the public debate about the economy: the >seer who saw it coming. He has been summoned to speak before >Congress, the Council on Foreign Relations and the World Economic >Forum at Davos. He is now a sought-after adviser, spending much of >his time shuttling between meetings with central bank governors and >finance ministers in Europe and Asia. Though he continues to issue >colorful doomsday prophecies of a decidedly nonmainstream sort -- >especially on his popular and polemical blog, where he offers visions >of "equity market slaughter" and the "Coming Systemic Bust of >the >U.S. Banking System" -- the mainstream economic establishment appears >to be moving closer, however fitfully, to his way of seeing things. >"I have in the last few months become more pessimistic than the >consensus," the former Treasury secretary Lawrence Summers told me >earlier this year. "Certainly, Nouriel's writings have been a >contributor to that." > >On a cold and dreary day last winter, I met Roubini over lunch in the >TriBeCa neighborhood of New York City. "I'm not a pessimist by >nature," he insisted. "I'm not someone who sees things in a bleak > >way." Just looking at him, I found the assertion hard to credit. With >a dour manner and an aura of gloom about him, Roubini gives the >impression of being permanently pained, as if the burden of what he >knows is almost too much for him to bear. He rarely smiles, and when >he does, his face, topped by an unruly mop of brown hair, contorts >into something more closely resembling a grimace. > >When I pressed him on his claim that he wasn't pessimistic, he paused >for a moment and then relented a little. "I have more concerns about >potential risks and vulnerabilities than most people," he said, with >glum understatement. But these concerns, he argued, make him more of >a realist than a pessimist and put him in the role of the cleareyed >outsider -- unsettling complacency and puncturing pieties. > >Roubini, who is 50, has been an outsider his entire life. He was born >in Istanbul, the child of Iranian Jews, and his family moved to >Tehran when he was 2, then to Tel Aviv and finally to Italy, where he >grew up and attended college. He moved to the United States to pursue >his doctorate in international economics at Harvard. Along the way he >became fluent in Farsi, Hebrew, Italian and English. His accent, an >inimitable polyglot growl, radiates a weariness that comes with being >what he calls a "global nomad." > >As a graduate student at Harvard, Roubini was an unusual talent, >according to his adviser, the Columbia economist Jeffrey Sachs. He >was as comfortable in the world of arcane mathematics as he was >studying political and economic institutions. "It's a mix of skills >that rarely comes packaged in one person," Sachs told me. After >completing his Ph.D. in 1988, Roubini joined the economics department >at Yale, where he first met and began sharing ideas with Robert >Shiller, the economist now known for his prescient warnings about the >1990s tech bubble. > >The '90s were an eventful time for an international economist like >Roubini. Throughout the decade, one emerging economy after another >was beset by crisis, beginning with Mexico's in 1994. Panics swept >Asia, including Thailand, Indonesia and Korea, in 1997 and 1998. The >economies of Brazil and Russia imploded in 1998. Argentina's followed >in 2000. Roubini began studying these countries and soon identified >what he saw as their common weaknesses. On the eve of the crises that >befell them, he noticed, most had huge current-account deficits >(meaning, basically, that they spent far more than they made), and >they typically financed these deficits by borrowing from abroad in >ways that exposed them to the national equivalent of bank runs. Most >of these countries also had poorly regulated banking systems plagued >by excessive borrowing and reckless lending. Corporate governance was >often weak, with cronyism in abundance. > >Roubini's work was distinguished not only by his conclusions but also >by his approach. By making extensive use of transnational comparisons >and historical analogies, he was employing a subjective, nontechnical >framework, the sort embraced by popular economists like the Times >Op-Ed columnist Paul Krugman and Joseph Stiglitz in order to reach a >nonacademic audience. Roubini takes pains to note that he remains a >rigorous scholarly economist -- "When I weigh evidence," he told me, >"I'm drawing on 20 years of accumulated experience using models" >-- >but his approach is not the contemporary scholarly ideal in which an >economist builds a model in order to constrain his subjective >impressions and abide by a discrete set of data. As Shiller told me, >"Nouriel has a different way of seeing things than most economists: >he gets into everything." > >Roubini likens his style to that of a policy maker like Alan >Greenspan, the former Fed chairman who was said (perhaps >apocryphally) to pore over vast quantities of technical economic data >while sitting in the bathtub, looking to sniff out where the economy >was headed. Roubini also cites, as a more ideologically congenial >example, the sweeping, cosmopolitan approach of the legendary >economist John Maynard Keynes, whom Roubini, with only slight >exaggeration, calls "the most brilliant economist who never wrote >down an equation." The book that Roubini ultimately wrote (with the >economist Brad Setser) on the emerging market crises, "Bailouts or >Bail-Ins?" contains not a single equation in its 400-plus pages. > >After analyzing the markets that collapsed in the '90s, Roubini set >out to determine which country's economy would be the next to succumb >to the same pressures. His surprising answer: the United States'. >"The United States," Roubini remembers thinking, "looked like >the >biggest emerging market of all." Of course, the United States wasn't >an emerging market; it was (and still is) the largest economy in the >world. But Roubini was unnerved by what he saw in the U.S. economy, >in particular its 2004 current-account deficit of $600 billion. He >began writing extensively about the dangers of that deficit and then >branched out, researching the various effects of the credit boom -- >including the biggest housing bubble in the nation's history -- that >began after the Federal Reserve cut rates to close to zero in 2003. >Roubini became convinced that the housing bubble was going to pop. > >By late 2004 he had started to write about a "nightmare hard landing >scenario for the United States." He predicted that foreign investors >would stop financing the fiscal and current-account deficit and >abandon the dollar, wreaking havoc on the economy. He said that these >problems, which he called the "twin financial train wrecks," might >manifest themselves in 2005 or, at the latest, 2006. "You have been >warned here first," he wrote ominously on his blog. But by the end of >2006, the train wrecks hadn't occurred. > >Recessions are signal events in any modern economy. And yet >remarkably, the profession of economics is quite bad at predicting >them. A recent study looked at "consensus forecasts" (the predictions > >of large groups of economists) that were made in advance of 60 >different national recessions that hit around the world in the '90s: >in 97 percent of the cases, the study found, the economists failed to >predict the coming contraction a year in advance. On those rare >occasions when economists did successfully predict recessions, they >significantly underestimated the severity of the downturns. Worse, >many of the economists failed to anticipate recessions that occurred >as soon as two months later. > >The dismal science, it seems, is an optimistic profession. Many >economists, Roubini among them, argue that some of the optimism is >built into the very machinery, the mathematics, of modern economic >theory. Econometric models typically rely on the assumption that the >near future is likely to be similar to the recent past, and thus it >is rare that the models anticipate breaks in the economy. And if the >models can't foresee a relatively minor break like a recession, they >have even more trouble modeling and predicting a major rupture like a >full-blown financial crisis. Only a handful of 20th-century >economists have even bothered to study financial panics. (The most >notable example is probably the late economist Hyman Minksy, of whom >Roubini is an avid reader.) "These are things most economists barely >understand," Roubini told me. "We're in uncharted territory where > >standard economic theory isn't helpful." > >True though this may be, Roubini's critics do not agree that his >approach is any more accurate. Anirvan Banerji, the economist who >challenged Roubini's first I.M.F. talk, points out that Roubini has >been peddling pessimism for years; Banerji contends that Roubini's >apparent foresight is nothing more than an unhappy coincidence of >events. "Even a stopped clock is right twice a day," he told me. >"The >justification for his bearish call has evolved over the years," >Banerji went on, ticking off the different reasons that Roubini has >used to justify his predictions of recessions and crises: rising >trade deficits, exploding current-account deficits, Hurricane >Katrina, soaring oil prices. All of Roubini's predictions, Banerji >observed, have been based on analogies with past experience. "This >forecasting by analogy is a tempting thing to do," he said. "But you >have to pick the right analogy. The danger of this more subjective >approach is that instead of letting the objective facts shape your >views, you will choose the facts that confirm your existing views." > >Kenneth Rogoff, an economist at Harvard who has known Roubini for >decades, told me that he sees great value in Roubini's willingness to >entertain possible situations that are far outside the consensus view >of most economists. "If you're sitting around at the European Central >Bank," he said, "and you're asking what's the worst thing >that could >happen, the first thing people will say is, 'Let's see what Nouriel >says.' " But Rogoff cautioned against equating that skill with >forecasting. Roubini, in other words, might be the kind of economist >you want to consult about the possibility of the collapse of the >municipal-bond market, but he is not necessarily the kind you ask to >predict, say, the rise in global demand for paper clips. > >His defenders contend that Roubini is not unduly pessimistic. Jeffrey >Sachs, his former adviser, told me that "if the underlying conditions >call for optimism, Nouriel would be optimistic." And to be sure, >Roubini is capable of being optimistic -- or at least of steering >clear of absolute worst-case prognostications. He agrees, for >example, with the conventional economic wisdom that oil will drop >below $100 a barrel in the coming months as global demand weakens. >"I'm not comfortable saying that we're going to end up in the >Great >Depression," he told me. "I'm a reasonable person." > >What economic developments does Roubini see on the horizon? And what >does he think we should do about them? The first step, he told me in >a recent conversation, is to acknowledge the extent of the problem. >"We are in a recession, and denying it is nonsense," he said. When >Jim Nussle, the White House budget director, announced last month >that the nation had "avoided a recession," Roubini was incredulous. >For months, he has been predicting that the United States will suffer >through an 18-month recession that will eventually rank as the "worst >since the Great Depression." Though he is confident that the economy >will enter a technical recovery toward the end of next year, he says >that job losses, corporate bankruptcies and other drags on growth >will continue to take a toll for years. > >Roubini has counseled various policy makers, including Federal >Reserve governors and senior Treasury Department officials, to mount >an aggressive response to the crisis. He applauded when the Federal >Reserve cut interest rates to 2 percent from 5.25 percent beginning >last summer. He also supported the Fed's willingness to engineer a >takeover of Bear Stearns. Roubini argues that the Fed's actions >averted catastrophe, though he says he believes that future bailouts >should focus on mortgage owners, not investors. Accordingly, he sees >the choice facing the United States as stark but simple: either the >government backs up a trillion-plus dollars' worth of high-risk >mortgages (in exchange for the lenders' agreement to reduce monthly >mortgage payments), or the banks and other institutions holding those >mortgages -- or the complex securities derived from them -- go under. >"You either nationalize the banks or you nationalize the mortgages," >he said. "Otherwise, they're all toast." > >For months Roubini has been arguing that the true cost of the housing >crisis will not be a mere $300 billion -- the amount allowed for by >the housing legislation sponsored by Representative Barney Frank and >Senator Christopher Dodd -- but something between a trillion and a >trillion and a half dollars. But most important, in Roubini's >opinion, is to realize that the problem is deeper than the housing >crisis. "Reckless people have deluded themselves that this was a >subprime crisis," he told me. "But we have problems with credit-card >debt, student-loan debt, auto loans, commercial real estate loans, >home-equity loans, corporate debt and loans that financed leveraged >buyouts." All of these forms of debt, he argues, suffer from some or >all of the same traits that first surfaced in the housing market: >shoddy underwriting, securitization, negligence on the part of the >credit-rating agencies and lax government oversight. "We have a >subprime financial system," he said, "not a subprime mortgage >market." > >Roubini argues that most of the losses from this bad debt have yet to >be written off, and the toll from bad commercial real estate loans >alone may help send hundreds of local banks into the arms of the >Federal Deposit Insurance Corporation. "A good third of the regional >banks won't make it," he predicted. In turn, these bailouts will add >hundreds of billions of dollars to an already gargantuan federal >debt, and someone, somewhere, is going to have to finance that debt, >along with all the other debt accumulated by consumers and >corporations. "Our biggest financiers are China, Russia and the gulf >states," Roubini noted. "These are rivals, not allies." > >The United States, Roubini went on, will likely muddle through the >crisis but will emerge from it a different nation, with a different >place in the world. "Once you run current-account deficits, you >depend on the kindness of strangers," he said, pausing to let out a >resigned sigh. "This might be the beginning of the end of the >American empire." > >© 2008 The New York Times > >AlterNet is making this New York Times material available in >accordance with Title 17 U.S.C. Section 107: This article is >distributed without profit to those who have expressed a prior >interest in receiving the included information for research and >educational purposes. > >Stephen Mihm, an assistant professor of economic history at the >University of Georgia, is the author of "A Nation of Counterfeiters: >Capitalists, Con Men and the Making of the United States." His last >feature article for the magazine was about North Korean >counterfeiting. > >© 2008 The New York Times All rights reserved. > >View this story online at: http://www.alternet.org/story/95375/ _______________________________________________ Biofuel mailing list Biofuel@sustainablelists.org http://sustainablelists.org/mailman/listinfo/sustainablelorgbiofuel Biofuel at Journey to Forever: http://journeytoforever.org/biofuel.html Search the combined Biofuel and Biofuels-biz list archives (70,000 messages): http://www.mail-archive.com/biofuel@sustainablelists.org/
