Karl Marx was right: 'capitalism can destroy itself' , says economist Nouriel Roubini
- DOW JONES
ECONOMIST Nouriel Roubini, in an interview with The Wall Street Journal today, reached back into history and paraphrased another well-known economist, to best explain what he thought of today's roiled global economy.
"Karl Marx was right, at some point capitalism can destroy itself," said Professor Roubini, who is best known for his dire outlook on economic developments which has earned him the nickname “Dr Doom”.
"Markets are not working," currently, he said.
Prof Roubini, in the wide-ranging interview, said the global economy was at the precipice of falling into a collective recession, led by the US, the euro zone and Japan, and governments were doing exactly the wrong things to prevent that.
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To that end, developed economies like the US and countries in the euro zone were implementing austerity programs in order to try to fix their debt-damaged economies when they should be enacting more monetary stimulus.
Because of that, he predicted the world had a 50 per cent chance of falling into a recession, and that the next 2-3 months would reveal which way the global economy would head.
"We are at stall speed right now, and we do not know if we are going to go up, or down," he said. The world is also operating right now, "in the fog of uncertainty," he said.
Many market analysts feel last week's US credit downgrade unleashed this latest round of market volatility, but Prof Roubini said he didn't disagree with Standard & Poor's premise that the US was on an unsustainable fiscal path and that Washington gridlock made it hard to achieve fiscal improvements.
Also, "we have destroyed our sovereign sustainability," in the US by moving from the healthy surplus of the beginning Bush years to the $US1.3 trillion ($1.25 trillion) deficit reality of 2011, with entitlements being expanded, two wars being fought, financial institutions being bailed out, and low taxes being kept, he said.
In some ways, he said, financial institutions had also become even too big to fail in the last few years, which threatened the US economy which no longer has the financial backstop to deal with such potential failures.
"There is a risk that this is the second leg of what happened during the Great Depression," he said.
Prof Roubini also predicted that "there could be QE3, QE4, QE5," in the US over the next few years.
"Now is not the time for risky assets," and that included the euro, he said.
Over a five-year horizon, it is possible that Italy or Spain could choose to leave the euro zone, if they think it would benefit them and they feel they are losing access to markets by being part of the euro zone.
"It's better to be safe than sorry and I'm putting most of my money in cash," with US Treasuries a smart bet, he said.
Additional reporting: Simon Constable, Tim Aeppel and Brenda Cronin
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