Roubini: into the buzzsaw

Our dried voices, when

We whisper together

Are quiet and meaningless

As wind in dry grass...

(T.S. Elliot, The Hollow Men)

I have long chided those who persistently have advocated that contrarian 'realists', to which I include Nouriel Roubini, were somehow less sophisticated and learned than the Svengali's of high commerce that opportunistically advertised and sold the benefits of casino-capitalism. Whether those persons were the Chairman of the Federal Reserve, the droves of market speculators, or propagandists in the business news departments, their understanding of the "free-market" and predictions have been proven to be at best abysmal and at worst criminal. It needs to be said and repeated frequently, that the world we were promised was the exact opposite to what we in fact received. Individual retirement accounts vaporized, long-term investments liquidated, businesses laid to waste, economies decimated, and in a few cases like Iceland, whole nation states brought to financial ruin.

So when Roubini, who constantly has been calling a spade a spade talks, I think everyone should listen. In yesterday's Globe and Mail (Canada) he summarized what he thought were the underlying weaknesses in the global economy that make the momentary upticks in growth irrelevant given the scope of future problems.

First, he outlines his reason for pessimism:

U.S. data – rising unemployment, falling household consumption, still declining industrial production, and a weak housing market – suggest America's recession is not yet over. A similar analysis of many other advanced economies suggests that, as in the United States, the bottom is quite close but has not yet been reached. Most emerging economies may be returning to growth, but they are performing well below their potential.

He then outlines four topics that will constrain future growth:

1. Individuals forced to save and re-capitalize themselves.

2. A financial system that remains both broken and inherently unstable

3. Business still face overcapacity, weak profits, and deflationary pressures

4. The re-leveraging of the public sector through large fiscal deficits and debt accumulation risks

He concludes that a double-dip recession is highly possible, given the existing uncertainties. Merely because one's position is unpopular does not make it any less factual or prescient. In that vein, I would also add that given the current retreat from globalization and the looming Malthusian resource threats (eg. water, commodity prices, & ecosystem instability) we should prepare ourselves for long-term stagnation and dismiss the boom-years as an artifact of irrational exuberance.