Wednesday, August 22, 2012

It's the Economy Stupid, always the Economy...

It's the Economy Stupid, always the Economy...

ZIO-Euro optimism is once again gushing through the system on the hope that the debt crisis could be wished away with a nod by German Chancellor Angela Merkel or with a wink by the Bundesbank at the ZIO-European Central Bank, which is dying to print unlimited amounts of moolah to buy sovereign bonds—and old bicycles, if it has to—in order to force yields down for debt-sinner countries like the Zioconned and utterly corrupt and criminal USA, Spain, France and Italy. But in Greece there has been an incident, a huge Tax revolt is shaping up...and more wild riots are in the offing!

Nouriel Roubini is suggesting that 2013 could make the year 2008 pale by contrast.

On July 7, 2012, he made the following points:

· "By 2013, the ability of policy makers to kick the can down the road is going to run out of steam.
· "In the Euro-zone the slow-motion train-wreck could become a faster-motion train wreck.
· "The U.S. looks close to stall-speed and a recession, given the latest economic data. The landing of China is becoming harder rather than softer.
· "The other emerging markets are all sharply slowing down in terms of growth--the BRICs, China, Russia, India, Brazil, and also Mexico, Turkey. Partly it's because there's a recession in the Eurozone and U.K., partly it's because they're not doing their reforms.
· "And finally there is the time bomb of a potential war between Israel and the U.S. and Iran. Negotiations have failed. The sanctions will fail. Obama doesn't want a war before the election, but after the election, regardless of whether it is Obama elected or Romney, chances are the U.S. is going to decide to go and attack Iran and then you'll have a doubling in global oil prices overnight.
· "So, it's the perfect storm! You could have a collapse of the Eurozone, a U.S. double-dip, hard-landing of China, hard-landing of emerging markets, and a war in the Middle East. Next year could be a global perfect storm."Well, it's much worse, because like 2008 you have an economic and financial crisis, but unlike 2008, you're running out of policy bullets. In 2008, you could cut rates from 5%-6% down to zero, do QE1, QE2, QE3, you could do fiscal stimulus up to 10% of GDP, you could backstop a guarantee bailout of banks and everybody else. Today, more QEs are becoming less and less effective because the problems are of insolvency not illiquidity. Fiscal deficits are already so large that everybody has to cut them, not increase them. And you cannot bail out the banks because (1) there is political opposition to it, and (2) governments are near insolvent and they cannot bail out themselves, let alone bail out the banking system.
· "So the problem is that we are running out of policy bullets. We're running out of policy rabbits to pull out of the policy hats compared to 2008. So if a free-fall of markets and economy does occur, you don't have any more of a safety net of enough policy bullets to try to absorb the shocks, because we've been spending the last 4 years using 95% of those bullets. So we are running out of bullets."

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