Matias Vernengo — Are emerging markets going to collapse? Why is Dr. Doom wrong

Don't panic just yet.

Naked Keynesianism
Are emerging markets going to collapse? Why is Dr. Doom wrong
Matias Vernengo | Associate Professor of Economics, University of Utah

Nouriel Roubini predicting WWI all over again. So now I'm really buying this dip!

Dr. Doom, Nouriel Roubini, who's been pretty much wrong on everything for the past five years, is now drawing parallels between 2014 and 1914.

#wef14 Echoes of 1914: backlash against globalization, gilded age of inequality, rising geopolitical tensions, ignoring tail risks
— Nouriel Roubini (@Nouriel) January 23, 2014

I've been waiting for a pullback to get back into stocks and I like all this worry and fear that is building. A bit lower, say, S&P 1750 or so, and I will start buying.

Let's hope Dr. Doom keeps scaring people until then.

Gennaro Zezza — The Next Bubble?

Is the U.S. economy heading towards another bubble? Since last week, the number of commentators on this subject has been growing, from Robert Shiller to Nouriel Roubini (on housing markets)...

Summing up, our findings suggest that U.S. non-financial corporations are in a healthy state – as measured by their net profits – but that this will not necessarily imply stronger U.S. growth and job creation. On the contrary, the data are coherent with a further increase in the concentration of income leading to financial speculation, in the U.S. as well as in foreign financial markets.

Restoring jobs and prosperity in the U.S. does not seem to be what U.S. corporations are working towards, and yes, the soaring stock market may change course very quickly, if “financial markets” make this decision.

Restoring sustainable growth in the U.S. (and elsewhere) requires a reversal of the trend in income distribution, since, as Stockhammer reminds us, “rising inequality has increased the propensity to speculate as richer households tend to hold riskier financial assets than other groups,” and “higher inequality has led to higher household debt as working class families have tried to keep up with social consumption norms despite stagnating or falling real wages” – a fact we already investigated a few years ago.

Multiplier Effect

The Next Bubble?
Gennaro Zezza | Associate Professor in Economics at the Department of Economics of the University of Cassino, Italy, and a Research Scholar at the Levy Institute of Economics

Roubini's 2012 US Forecast — Anemic

Read it at Project Syndicate
The Straits of America

by Nouriel Roubini

Paradox of thrift:

Given all of these large and small risks, businesses, consumers, and investors have a strong incentive to wait and do little. The problem, of course, is that when enough people wait and don’t act, they heighten the very risks that they are trying to avoid.

Krugman on 2012 — Will China Break?

Now the bubble is visibly bursting. How much damage will it do to the Chinese economy — and the world?

Some commentators say not to worry, that China has strong, smart leaders who will do whatever is necessary to cope with a downturn. Implied though not often stated is the thought that China can do what it takes because it doesn’t have to worry about democratic niceties.

To me, however, these sound like famous last words. After all, I remember very well getting similar assurances about Japan in the 1980s, where the brilliant bureaucrats at the Ministry of Finance supposedly had everything under control. And later, there were assurances that America would never, ever, repeat the mistakes that led to Japan’s lost decade — when we are, in reality, doing even worse than Japan did.

Read it at The New York Times

Will China Break?

by Paul Krugman

Could Krugman be right that we've seen this before?

I hope that I’m being needlessly alarmist here. But it’s impossible not to be worried: China’s story just sounds too much like the crack-ups we’ve already seen elsewhere. And a world economy already suffering from the mess in Europe really, really doesn’t need a new epicenter of crisis.

See also Michael Pettis on capital misallocation in China (Dec. 3) if you missed it.

Read it at China Financial Markets
How do we know that China is overinvesting?
by Michael Pettis

UPDATE: Don't overlook Dr. Doom on this either.

Read it at Project Syndicate
China’s Bad Growth Bet
by Nouriel Roubini

However, Roubini doesn't see a hard landing hitting until 2013.

Roubini tweets: "Paul Krugman asking 'Will China Break?' Consistent with what RGE/I have been writing for a year on hard landing risks."

Roubini is catching on

Edward Harrison summarizes a recent article by Daniel Alpert, Robert Hockett, and Nouriel Roubini, The Way Forward: Moving From the Post-Bubble, Post-Bust Economy to Renewed Growth and Competitiveness. Harrison's summary is short and to the point and definitely worth a read if you don't have time to read the paper.

I think that most MMT economist would agree with the overall approach, which sees the problem as a "balance sheet recession" (Richard Koo) morphing into debt-deflation.

What is particularly promising is that more economists are getting closer to getting MMT. Roubini seems to be moving in this direction.

Roubini on the perils of inequality

Any economic model that does not properly address inequality will eventually face a crisis of legitimacy. Unless the relative economic roles of the market and the state are rebalanced, the protests of 2011 will become more severe, with social and political instability eventually harming long-term economic growth and welfare.

This is the conclusion of Nouriel Roubini's post at Project Syndicate on The Instability of Inequality. It's a good short read. Roubini even quotes Marx, who is appearing more and more in the mainstream these days.