The man that predicted the 2008 crisis, economist Nouriel Roubini, believes that the chance of us experiencing a return to recession is over 50%, and the next two to three months will be decisive for the direction for the world economy.
Currently, the economy is affected by reduced consumption, especially due to reluctance of firms to make new employment and investment to give an impulse to the economy, and almost nothing can be done to improve the situation, said economist Nouriel Roubini in an interview for the Wall Street Journal.
“To deal with large debt you should spend less in both the public and private sectors, to save more, and reduce overtime. Also, to avoid a second recession, bank policies should be more relaxed”, said Roubini.
“There is too much debt, in the private sector and the government. You can’t get out of debt except by saving, by strong economic growth or the dangerous method of inflation”, says Roubini. “But if consumption of population and businesses does not restart , then the risk is to remain in recession”.
“Business does not help the economy, because there are risks. They do not invest because there is excess capacity, not hiring because there is not sufficient demand. Here is the paradox: if you do not hire workers, there is insufficient income for workers, there is not sufficient consumer confidence, there is not enough consumption, there is not enough final demand”, says Roubini.
Capitalism can destroy itself
“The capitalist system is about to enter into a destructive loop, in which each tries to save from, without care for the general interest”, says Roubini.
“In the last 2-3 years the situation has worsened. We had a massive redistribution of income from labor market to capital, from wages to profits, the inequality in income and wealth has increased. The tendency of businesses to spend is reduced than the one of population and companies can afford to save more than the population. Redistribution of income and wealth make the lack of aggregate demand even worse.
Karl Marx was right, at some time, capitalism can destroy itself. You can’t move income from work to capital without having an excess of capacity and a lack of aggregate demand. This is what happens. We thought that markets work, but they don’t. It is a destructive process”, says the economist, who added that, although we’re not at this stage, the risk of a new recession is over 50%.
Bush to blame for the situation of U.S.
The economist believes that blame for the current financial situation of the country lies with George W. Bush. “When Obama came to power, he inherited a huge budget deficit”, says the economist. “When Bush took over the country, the U.S. had a surplus of $300 billion. How did this happen?
We have reduced taxes in 2001-2003, we spent money on two wars lost just from the beginning, the spending has doubled, we provided benefits and have neglected the supervision of banking system that caused the biggest financial crisis. So there were five factors that have led from a large surplus to a huge deficit. Do not blame Obama. U.S. economic sustainability was destroyed before his coming”, says Roubini.
Riots like those in London could happen anywhere
Roubini argues that the riots as they were in London, can break in any country. “They started in the Middle East because of poverty, unemployment, but the same dissatisfaction exists in Israel and the United Kingdom. These inequalities, the lack of jobs and income, and lack of economic growth can lead to social and political instability in any country. Even in China, where the economy is slowing down and inequality increases. And in the U.S. as well”, Roubini believes.
Economists believe that austerity measures will push the countries even deeper in recession, including Britain, France and USA, which have not yet lost access to markets, but there is immense pressure. Roubini’s short-term solution is to encourage economy through higher deficits, and, for medium and long term, a strategy that promises to reduce indebtedness, as the economy enters a growth cycle.
Roubini keeps his money in cash
The well-known economist prefers to keep his money in cash and avoid risky assets, as he advises his customers. He believes that gold is good investment in times of economic uncertainty, especially because it is an antidote to inflation, although he sees limited risk in this direction.