Roubini: Rising Sovereign Debt Leads to Defaults

30 Apr

Nouriel Roubini, one of just a dozen economists who publicly forecast the GFC, and who recently declared that ‘risky rich’ countries are in greatest danger of default, comments again on the rapidly spreading sovereign debt crisis (from Bloomberg):

Nouriel Roubini, the New York University professor who forecast the U.S. recession more than a year before it began, said sovereign debt from the U.S. to Japan and Greece will lead to higher inflation or government defaults.

“The bond vigilantes are walking out on Greece, Spain, Portugal, the U.K. and Iceland,” Roubini, 52, said yesterday during a panel discussion on financial markets at the Milken Institute Global Conference in Beverly Hills, California. “Unfortunately in the U.S., the bond-market vigilantes are not walking out.”

“The thing I worry about is the buildup of sovereign debt,” said Roubini, a former adviser to the U.S. Treasury and IMF consultant, who in August 2006 predicted a “painful” U.S. recession that came to fruition in December 2007. If the problem isn’t addressed, he said, nations will either fail to meet obligations or see faster inflation as officials “monetize” their debts, or print money to tackle the shortfalls.

Roubini, who teaches at NYU’s Stern School of Business, told attendees at the Beverly Hilton hotel that “Greece is just the tip of the iceberg, or the canary in the coal mine for a much broader range of fiscal problems.”

“Eventually, the fiscal problems of the U.S. will also come to the fore,” Roubini said during the panel discussion. “The risk of something serious happening in the U.S. in the next two or three years is going to be significant” because there’s “no willingness in Washington to do anything” unless forced by the bond markets.

Barnaby Joyce began trying to draw attention to the dangers of growing sovereign debt – warning of a coming day of reckoning in the USA and Europe and here in Australia – as far back as October 2009. As I have shown in countless posts on this blog, many leading economists, financiers, and informed commentators in other countries have been raising almost exactly the same concerns as Barnaby.

Few in Australia chose to listen.

Instead, Barnaby was ridiculed by the government and the media for every minor gaffe or slip of the tongue, his every statement misquoted or twisted out of context. With the ultimate result that he lost his position as opposition Finance spokesman thanks to the relentless attacks on his economic credibility. Despite his being better qualified to comment on finance than the entire Rudd Government economic team.

Only weeks later, those who do choose to look and listen can see ever more clearly… Barnaby Is Right.

2 Responses to “Roubini: Rising Sovereign Debt Leads to Defaults”

  1. Bacchus May 11, 2010 at 9:41 am #

    There is the minor matter of the Minister for Competition Policy and Consumer Affairs; Minister for Small Business, Independent Contractors and the Service Economy; Minister Assisting the Finance Minister on Deregulation.

    “Craig holds a Bachelor of Economics (Honours) Degree from the University of Sydney, a Master of Economics Degree from the University of Sydney and a PhD in Economics from The Australian National University.

    He has been a Post-Doctoral Fellow at The Australian National University and has 17 publications to his name, including a book setting out a vision and plan for Australia’s future.”

    Of course we wouldn’t forget the qualifications of the former PM or his treasurer either, or that government’s first finance minister, would we?

    • The Blissful Ignoramus May 11, 2010 at 9:56 am #

      And yet for all those “qualifications”, Craig Emerson (a) did not foresee, much less forewarn of an onrushing GFC that was patently obvious to anyone with the ability to cast their eyes beyond their own self-interest; and (b) is not deemed by his own party to be worthy of a more influential role in running the economy.

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