The Chairman of Roubini Global Economics - Nouriel Roubini believes that the long-simmering tensions in the Middle East between Israel and the US on one side and Iran on the other on the issue of nuclear proliferation could reach a boil by 2013. Roubini, who is a professor at New York University’s Stern School of Business, thinks, that the current negotiations are likely to fail, and even tightened sanctions may not stop Iran from trying to build nuclear weapons. With the US and Israel unwilling to accept containment of a nuclear Iran by deterrence, a military confrontation in 2013 would lead to a massive oil price spike and global recession.
These risks, believes Nouriel Roubini, are already exacerbating the economic slowdown: equity markets are falling everywhere, leading to negative wealth effects on consumption and capital spending. Roubini explained that the borrowing costs are rising for highly indebted sovereigns, credit rationing is undermining small and medium-size companies, and falling commodity prices are reducing exporting countries’ income. Increasing risk aversion is leading economic agents to adopt a wait-and-see stance that makes the slowdown partly self-fulfilling.
According to Roubini, the situation now is more complicated collated to some crisis in the past. He thinks that, compared to 2008-2009, when policymakers had ample space to act, now monetary and fiscal authorities are running out of policy rabbits to pull out of their hats. Monetary policy is constrained by the proximity to zero interest rates and repeated rounds of quantitative easing. Indeed, economies and markets no longer face liquidity problems, but rather credit and insolvency crises. Meanwhile, unsustainable budget deficits and public debt in most advanced economies have severely limited the scope for further fiscal stimulus.
Nouriel Roubini thinks that using exchange rates to boost net exports is a zero-sum game at a time when private and public deleveraging is suppressing domestic demand in countries that are running current-account deficits and structural issues are having the same effect in surplus countries. After all, a weaker currency and better trade balance in some countries necessarily implies a stronger currency and a weaker trade balance in others.
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Nouriel Roubini is an American economist, chairman of Roubini Global Economics, an economic consultancy firm. He also teaches at New York University's Stern School of Business.
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