Prof. Roubini - End of American Empire and All That

Discussion in 'Economics' started by dalengo, Sep 23, 2008.

  1. dalengo


    6 September 2008
    “The Coming US Consumption Bust”, by Nouriel Roubini

    Filed under: Post-WWII Geopolical Regime, End of — Tags: nouriel roubini, recession — Fabius Maximus @ 12:01 am

    A nice summary of the current situation. Professor Roubini is far more optimistic than I. That’s said with trepidation, as economic forecasting is among the most difficult of human endeavors.

    “The Coming US Consumption Bust: 12 Reasons Why the US Consumer is in Serious Trouble and Faltering“, Nouriel Roubini (wikipedia bio), RGE Monitor, 3 September 2008
  2. I've heard him on TV a couple of times.

    He does seem pretty smart which worries me!
  3. dalengo


    18 August 2008
    Prof Nouriel Roubini describes “The Decline of the American Empire”

    Filed under: Post-WWII Geopolical Regime, End of — Tags: American empire, nouriel roubini, rge monitor, trade deficit — Fabius Maximus @ 12:00 pm

    The hot dots in economics today are, in my opinion, David Rosenberg and Nouriel Roubini. Roubini is a professor of economics at NYU, noted expert in international finance, and founder of RGE Monitor(a aggregator of economics and finance articles, invaluable for anyone in those fields).

    His forecasts are grim reading (by comparison with my longer-term views, he is a pollyanna). For a brief on his forecasts, see this interview in the current New York Times Magazine (15 August 2008) – aptly titled “Dr. Doom“. With free registration, you can read his reports in full at RGE Monitor (and also many posts from this site).

    In Roubini’s latest report he comments on a subject familiar to readers of this site: “The Decline of the American Empire“, posted at RGE Monitor, 13 August 2008. Here are some excerpts; I recommend reading it in full.

    Recent economic, financial and geopolitical events suggest that the decline of the American Empire has started. After the collapse of the Soviet Union there was a brief period where the world switched from a bipolar balance of two superpowers to a unipolar world with one economic, financial, geostrategic superpower, or better, hyperpower, i.e the United States. But by now three factors suggest that the US has squandered its unipolar moment and that the decline of the American Empire - as the US was in effect a global empire - has started.

    Let us explain how and why.

    First, the US squandered its power by relying excessively on its hard military power in the wars of Iraq and Afghanistan and in its unilateralist foreign policy - including economic issues such as global warming - rather than relying more on its soft power of diplomacy and multilateralist approaches to global policy issues.

    Second, regardless of mistaken US policies the rise of other economic and financial powers - the rise of China, the recent resurgence of Russia, the process of economic and political integration in the European Union, the emergence of India, and the rise of other regional powers such as Brazil, South Africa and Iran - implies that the relative economic, financial and geopolitical power of the US will be reduced over time. We are indeed slowly moving towards a multipolar world where there will be a balance of Great Powers rather than the hegemony of a single hyperpower.

    … Third, and more important, the US squandered its economic and financial power by running reckless economic policies, especially its twin fiscal and current account deficits. … The trouble with these twin deficits is multi-fold.

    First, superpowers and empires - like the British Empire at its peak - tend to be net lenders - i.e run current account surpluses - and be net creditors, not net debtors; The decline of the British Empire started in World War II when the British fiscal deficits in the war and the current account deficits turned that empire into a net borrower and a net debtor both in its public debt and external debt. That financial switch into an external debtor and borrower position was also the reason for the decline of the British pound as the leading reserve currency. And the British twin deficits were being financed by a rising economic and financial power that was a net lender and a net creditor, the US.

    Second, the last time the US was running large twin deficits in the 1980s the main financers of these deficits were the friends and allies of the US, i.e Japan, Germany and Europe as the US external deficit was against these economies. Today instead the economic powers financing the US twin deficits are the strategic rivals of the US - China and Russia - and unstable petro-states, i.e Saudi Arabia, the Gulf States and other shaky petro-states. This system of vendor financing - with these US creditors providing both the goods being imported and the financing of such deficits - has led to a balance of financial terror: if these creditors were to pull the plug on the financing of the US twin deficits the dollar would collapse and US interest rates would go through the roof.

    Third, while it is unlikely that China, Russia and other powers would suddenly pull the rug from under the US feet - as such action would lead to a sharp appreciation of their currency and negatively affect their export led growth model - relying excessively on the kindness of strangers - especially that of your strategic rivals - is extremely risky. Since almost 100 percent of all US fiscal deficits since 2001 have been financed by non-residents - as US residents net holdings of US Treasuries have been flat since 2001 - by now the total stock of US Treasuries held by non-residents is getting close to 60 percent. And the foreign financing of the US current account deficits has also become more risky: less FDI and equity, more debt, more short term debt, more debt held by official political actors - central banks and sovereign wealth funds - , less debt held by foreign private investors, and more debt held by politicals rivals rather than allies of the US. This change makes the US vulnerable to such rivals using the financial terror weapon - dumping US assets and or reduicing their financing of the US twin deficits - in situations of geostrategic tension.

    Fourth, the foreign creditors of the US are getting tired of financing the US in the form of low-yielding US Treasuries. Thus the switch of such reserve holdings to SWFs that are planning to make large equity investments possibly with actual control of corporate firms and financial institutions that are desperate for capital to recapitalize themselves. … a country that needs to borrow from abroad 700 to 800 billion dollar a year to finance its external deficit cannot afford to be too choosy on the ways - equity rather than debt - that its lenders and creditors want to finance those deficits.

    … The ensuing decline of the US dollar as the main reserve currency will take time and will not occur overnight; but it is inexorable given the relative fall in US economic, financial and geopolitical power.

    A brief note on the US Dollar. Is this like August 1914? (8 November 2007) — How the current situation is as unstable financially as was Europe geopolitically in early 1914.
    The post-WWII geopolitical regime is dying. Chapter One (21 November 2007) — Why the current geopolitical order is unstable, describing the policy choices that brought us here.
    We have been warned. Death of the post-WWII geopolitical regime, Chapter II (28 November 2007) — A long list of the warnings we have ignored, from individual experts and major financial institutions (links included).
    Death of the post-WWII geopolitical regime, III - death by debt (8 January 2008) – Origins of the long economic expansion from 1982 to 2006; why the down cycle will be so severe.
    Geopolitical implications of the current economic downturn (24 January 2008) – How will this recession end? With re-balancing of the global economy, so that the US goods and services are again competitive. No more trade deficit, and we can pay out debts.
    A happy ending to the current economic recession (12 February 2008) – The political actions which might end this downturn, and their long-term implications.
    What will America look like after this recession? (18 March 208) — More forecasts. The recession might change so many things, from the distribution of wealth within the US to the ranking of global powers.
    The most important story in this week’s newspapers (22 May 2008) — How solvent is the US government? They report the facts to us every year.
    To see the all posts on this subject, go to the archive for The End of the Post-WWII Geopolitical Regime.


    Possibly related posts: (automatically generated)

    “The Coming US Consumption Bust”, by Nouriel Roubini
    Nouriel Roubini in Barron’s
    The Crisis of the Suburbia
    “We are indeed slowly moving towards a multipolar world where there will be a balance of Great Powers rather than the hegemony of a single hyperpower.”

    I have an even more radical idea: Maybe there never was such a thing as a hyperpower an the USA was all the time unable to take on more than two mediocre opponents at once (which was, btw, the 90’s planning rationale; Middle East and North Korea wars at once) without mobilization. The so-called hegemony was probably more an illusion, fed to the world by the PR-gifted Americans, than reality.
    Fabius Maximus replies: I strongly agree.

    Comment by Sven Ortmann — 18 August 2008 @ 10:25 pm

    So Roubini reads Zakaria. But how do YOU feel about the CFR party line and politics a la obama? With deference to Roubini, who I have called a true patriot on his blog, is the ‘rise of the rest’ best for the rest of us? And is the CFR’s weltanschaung (probably consistent with Zakaria’s) good for us as well?
    Fabius Maximus replies: Roubini is an economist describing what is happening, inevitably. Like the sun rising, the rise of other powers is something to which we must adapt. Our feckless policies have accellerated this process, but 300 million can not long maintain hegemony over billions.
  4. achilles28


    He's right on about all of it.

    Especially future growth.

    Bailouts steal growth from future generations by creating inflation which destroys wealth and locks up bad money from reinvestment in more productive opportunities.

    We're in for a long, hard shakedown.

    Markets going 1990 Nikkie Style.

    DOW @ 7000 or Gas @ 7 dollars a Gallon.

    Either way, we'll have our crash.

    The Market cannot be tricked into a new Bull.

    Cannot happen. Laws of PHysics cannot be broken.
  5. Only in America.

    Had he been in Russia and wrote such a thing...

    Professor Roubini?? who ? as of tommorow!

    Maybe thats another thing thats going to bite us in the ass down the road
  6. There is already a flight into the basic commodities. Great manufacturers like in Germany are also quite safe I think. Those companies who own natural resources in the US, and are in good fiscal condition should be relatively safe bets...
  7. dalengo


    Science 19 September 2008:
    Vol. 321. no. 5896, p. 1605
    DOI: 10.1126/science.1162924


    Norman R. Augustine (ret. Lockheed-Martin CEO)

    More than half of the increase in U.S. gross domestic product (GDP) has been attributed to advancements in science, technology, and innovation. The solution to many of America's, and the world's, greatest challenges depends on advancements in science and technology--including providing energy, preserving the environment, supplying food and water, ensuring physical security, providing health care, and improving the global standard of living.
    But there are a few problems. The United States ranks 16th and 20th among nations in college and high-school graduation rates, respectively; 60th in the proportion of college graduates receiving natural science and engineering degrees; and 23rd in the fraction of GDP devoted to publicly funded nondefense research. The number of U.S. citizens receiving Ph.D.s in engineering and the physical sciences has dropped by 22% in a decade. U.S. high-school students rank near the bottom in math and science.

    Three years ago, a U.S. National Academies committee recommended (in the report The Gathering Storm) doubling federal investment in basic research in math, the physical sciences, and engineering while, at a minimum, protecting the health sciences against inflation (the cost of which, in math, the physical sciences, and engineering, equals the amount by which the nation's expenditure on health care increases every 7 weeks).

    Much has been accomplished since The Gathering Storm was published. A new research university was established, with an opening endowment equal to what the Massachusetts Institute of Technology amassed after 142 years. Next year, over 200,000 students will study abroad, mostly pursuing science or engineering degrees, often under government scholarships. Government investment in R&D is set to increase by 25%. An initiative is under way to create a global nanotechnology hub. An additional $10 billion dollars is being devoted to K-12 education, with emphasis on math and science. And a $3 billion dollar add-on to the nation's research budget is in process.
    Of course, these actions are taking place in Saudi Arabia, China, the United Kingdom, India, Brazil, and Russia, respectively.

    What about in the United States? After the U.S. Congress authorized funding to implement many of The Gathering Storm's recommendations, the needed funds were lost in an impasse over the Appropriations Act. As a result, one leading national laboratory began to impose mandatory 2-day-per-month "unpaid holidays" on its science staff, several laboratories began laying off researchers, the U.S. portion of the international program to develop plentiful energy through nuclear fusion was reduced to "survival mode," America's firms continued to spend three times more on litigation than research, and many young would-be scientists presumably began reconsidering their careers. Meanwhile, a $3 trillion dollar federal budget was approved and a $152 billion dollar economic stimulus package (much of which is likely to be spent on products made in China) whisked through Congress along with 12,000 earmarks that found their way into the Appropriations Act.

    Where were the voices of those who understand the dire consequences of these actions? During the past two presidential campaigns, efforts were made by the science and engineering communities to engage candidates in a "user-friendly" science policy conversation not designed to be a debate (questions were to be provided in advance and "contentious" issues were off limits). Every candidate declined to participate. Imagine this happening to invitations from the American Bar Association or American Medical Association! Ironically, there are five times as many people in the United States with a degree in science or engineering currently working in those fields than there are either practicing lawyers or medical doctors. The "scilence" is deafening.

    Of the 535 members of the U.S. Congress, only 8 list themselves as engineers or scientists. Of the 9 senior leaders in China, 8 hold such degrees. How can America's political leaders be expected to make sound policy decisions in a world of increasingly complex science and technology if the most qualified individuals in those fields remain absent from the field of play? If current trends persist, the United States may well be on its way to becoming "America, the land of the free and the home of the unemployed."

    Norman R. Augustine is retired chairman and chief executive officer of Lockheed Martin Corporation and was chairman of the U.S. National Academies committee that produced The Gathering Storm report.
  8. Of course it can.

    As long as foreigners will keep buying US debt we will be fine. What else can foreigners buy that is as safe as US denominated treasuries - EU/Canada are socialist countries and are in a deep shit, Asia is too young, Russia fucked them once already, etc

    Where else one would keep US$ earned from selling staff on US market?
  9. American politicians know business and/or are involved in business - sometimes just come from business families.
    Isn't that reassuring? Politicians with strong ties to the industry of making money... and interested in making money.

  10. Funny you mention those profligate socialist Canadians because in the early 1990s the government there became concerned at the high and increasing amount of the national debt owed to foreigners and began addressing the issue. Their debt levels are pretty much the same as that of the United States based on % of GDP, maybe even a little lower. Heard mention that may even be the lowest among the G7 or close to it. So yes they may be a safer alternative. Actually converting to Canadian dollars isn't that bad an idea.

    Socialists more fiscally responsible? That's what the facts seem to suggest.

    By the way here is a national debt chart of the US over the years:


    Looks like those white bars representing estimates will have to be revised.

    More detailed discussion and observations:
    #10     Sep 24, 2008