From Reuters, the wisdom of doom merchant Nouriel Roubini.
Roubini presented a list of six rising global risks, and six declining global risks.
Lets start with the bad news. Here are the risks that are coming into view. My comments are in italic.
– China! “Some people believe in a hard landing… some people believe in a softer landing,” said Roubini. “I worry about a bumpy, tougher landing.” What does that mean? Growth of 6% or less by 2016 and the continuation of bad investment policies. Roubini does not believe the market is pricing this in yet. So keep an eye on news coming out of China, especially related to banks going under because of non-performing loans, or a major collapse in property pricing.
– A policy mistake by the Fed. For example, lets say the Fed decides to set the Fed Funds Rate at 3% rather than 2%, and that turns out to be too high. Maybe the Fed exits QE too soon. At the moment the economy is expecting average news- not too good and not too bad. IF the news on the US economy is too good, there is a fear the Fed will taper sooner, and increase rates… this is bad. Conversely if economic data is bad then its bad news. Confused… join the rest of us.
– Roubini sees a “stagnation in advanced economies,” thanks in part to income inequality. Right now companies are rich but they’re not spending any of that money on capital expenditures. They don’t see the demand. Why? Because of the vast majority of developed market workers haven’t had an increase in disposable income in the last 5 years. “High debt and inequality are slowing down consumption.” In consumption based, advanced economies, “that’s a problem,” said Roubini.
– There are six new countries that are fragile for political and economic reasons — Argentina, Venezuela, Thailand, Ukraine, Russia, and Hungary.
– An expansionist Russia. “Putin is not just after Ukraine, he wants to re-create the Communist empire via a Eurasian union,” said Roubini. It’s a 20 year process that would join a bunch of countries in Eastern Europe politically and economically. Where the challenge is, is that some of these places are NATO linked (the Baltic states) and this could pose a problem for the west’s alliance system.
– Japan and China are really getting angry at each other.”I was quite disturbed at the World Economic Forum… senior officials were talking about relations between China and Japan being like Britain and Germany before WWI.” You’ve got nationalist governments in both countries, and xenophobic elements that could be exacerbated if either country’s economy goes sour. This conflict would spill out to the rest of Asia too — to Korea and India at the very least. And part of this feeling is linked to deflecting public opinion away from failed policies at home, to supporting the Government in foreign relations. For China its also partly about placating the military with the economic reforms that are being attempted.
Here are the risks that kept everyone awake at night, that are now receding in importance.
– It looks like the Euro Zone is going to stay together — the Grexit (Greek Exit from EU) isn’t going to happen and austerity is almost over (Maybe).
– The United States is out of the woods in terms of a potential fiscal crisis, and it seems like Democrats and Republicans have come to a truce on the fiscal cliff. (no more acting out that Congree wont permit any borrowing, plus the debt is appearing to becoming less)
– The risk of deflation in Japan has fallen thanks to Abenomics, at least for now.
– The risk of deflation in all advanced economies, in fact, is low thanks to quantitative easing. “Of course inflation is still too low,” Roubini added.
– The Middle East — Pakistan, Afghanistan, Syria etc. — is still a mess, but investors just don’t care as long as it’s not messing with oil and gas supply.
So that’s the good news, we are blessed to live in exciting times. Please share what worries you about the current world economy.