Tuesday, July 10, 2012

Those four elements — stalling U.S. growth rates, Europe's debt crisis, cooling emerging markets (China namely) and military conflict in the Middle East — are happening now.

Roubini: ‘Perfect Storm’ Poised to Strike Earlier Than Feared
Tuesday, 10 Jul 2012 08:04 AM
By Forrest Jones

A “Perfect Storm” of economic events forecast to strike the global economy in 2013 is gathering steam earlier than expected, and the world is beginning to feel its effects now, says New York University economist Nouriel Roubini.

Earlier this year, Roubini, who called the 2008 housing bust and subsequent contraction long before it happened, predicted a confluence of four events to merge into an economic hurricane and derail the global economy next year.

Those four elements — stalling U.S. growth rates, Europe's debt crisis, cooling emerging markets (China namely) and military conflict in the Middle East — are happening now.

"2013 perfect storm scenario I wrote on months ago is unfolding: EZ crisis, US stall speed, China hard landing, EM stall, MidEast time bomb," Roubini writes on his Twitter page, on which he relies heavily.

Central banks have moved to stimulate their respective economies by cutting interest rates and injecting liquidity into their financial systems to foster conditions ripe for investing and hiring.

Such moves lose effectiveness when repeated, Roubini says, especially when it comes to juicing stock markets so that people feel more confident and move to expand their businesses and take on new workers.

Translation: Batten down the hatches, because nothing is going to steer the storm away.

"If perfect storm occurs difference btw 2008 & now is: then we had all the policy bullets; now we [are] running out of rabbits to pull out of the hat."

"Levitational force of policy easing can only temporarily lift asset prices as gravitational forces of weaker fundamentals dominate over time," Roubini says.

Market talk is growing that the Federal Reserve will step in and roll out a third round of asset purchases from banks, a policy tool known as quantitative easing, to prevent the economy from stalling and petering out, especially in wake of a string of weak monthly jobs reports.

"So far data has been coming in weak and I gave a weak forecast myself," Boston Federal Reserve President Eric Rosengren told reporters at a forum in Thailand, Reuters reports.

"I think it's appropriate to have more quantitative easing."

Rosengren does not have a vote on the Federal Reserve's monetary policy body this year but will next year.