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Global Economy Will Suffer More Financial Crises in Next 10 Years: Roubini
CNBC.com | September 27, 2010 | 04:08 AM EDT
The global economy will suffer a "couple of financial crises over the next 10 years" as financial reforms are not going in the right direction and not enough is being done, warned Nouriel Roubini, chairman at Roubini Global Economics.
"Nothing has changed fundamentally. When the regulatory reform was passed by the U.S. Congress, my view is too little, too late," Roubini told CNBC Monday on the sidelines of the World Capital Markets Symposium in Kuala Lumpur, Malaysia.
Roubini said even if the world economy doesn't slip into a double-dip, the effects will still be felt.
"We are already in a situation which is going to feel like a recession, (even) if we are not in one," he said.
"And if the economic data surprise on the down side, we are going to have a correction of the stock markets, widening of credit spreads, increased volatility, increase risk aversion, then it leads to a shock for the real economy."
Roubini said further quantitative easing by the U.S. Federal Reserve will not help a market already flushed with excess liquidity.
"At this rate of easy money, at some point, asset bubbles and credit bubbles (are) already occurring in some parts of the world, like in emerging markets," he said.
"The banks in the U.S. are already sitting on $1 trillion excess of reserves, (yet) they are not lending. The problems of the economy are problems of solvency, of credit, of houses, of corporates, of banks and not a problem of liquidity. I don't believe quantitative easing is going to make much of a difference.
Roubini believes the Obama administration needs to tackle the country's high unemployment head-on, and suggests the Obama administration adopt payroll tax cuts for a couple of years.
"That's a fiscal cost but where I suggest to make it revenue neutral is to make sure that the expiring tax cuts for the rich are going to be used," he said.
“So it's going to be revenue neutral, it is not going to be budget busting and it's also going to stimulate demand for labor. That's what we need in the U.S. economy — if you don't have labor income, you don't have consumption. You don't have consumption, you don't have economic growth."
On the ongoing dispute between the U.S. and China over the yuan exchange rate, Roubini disagreed with Chinese Premier Wen Jiabao’s view that a 20 percent appreciation will bankrupt many companies in its export sector.
“(China is a) country that has productivity growth and excess of wage growth — (it) can afford an appreciating currency without the negative effects on economic growth,” said Roubini.
