Nouriel Roubini Leader 73 Thinking Ahead Nouriel Roubini, one of the world’s most prominent global nomads, on the global economy, himself and on why greed should be controlled by fear. Credit Suisse bulletin 1/11 74 Leader Nouriel Roubini Interview: Dan Scott tries, regions and markets around the world. No individual can be smart enough to have a monopoly on wisdom and truth. You have bulletin: People call you a prophet. How do feel about that? to be modest about it. I bring more than 25 years of knowledge Nouriel Roubini: I don’t really think I’m a prophet. Some people of economic theory, empirical analysis of history, of understanding even call me Dr Doom. I think it’s sensible to be realistic about the of economic policies, of markets. So yes, the data are the same. challenges that are facing the global economy. It’s not a question But being an independent analyst, not having any conflict of inter- to be too optimistic or pessimistic. I try to always be balanced in est that may arise from having to manage money, implies that my assessments – as much as possible – with an objective assess- your success is based on your reputation. You’re not always going ment of the risks, of the volatilities, of the upsides, thinking about to be right, but what also matters is the reasoning. Things may scenarios and assigning probabilities. That’s the only way to turn out one way or another. We have to understand what the sce- approach an uncertain future. nario can be and what the asset price implications are. Data will This sitting on the fence is exactly what many don’t like. suggest which scenario is the more likely. Yes. They sometimes say economists are two-handed; on the one The trade talks in Doha failed. Do we care? hand, on the other hand. You have to think about scenarios and It does matter, because a progressive trade liberalization at a mul- probabilities. But then you also have to think about what your own tilateral level is important to have the benefit of trade integration. conviction and main view is, and express it thoughtfully and intelli- The fact that the talks have stalled is a negative, partially because gently. But of course, if data changes, you also have to revise your of the risk of a reversal of the existing trade liberalization. Things views and not just stick with them for the sake of it. can instead take place at the bilateral level. But my opinion, which We all work with the same data. How is it that we end up with is shared by many economists, is that bilateral trade agreements such different judgements? often can lead to trade diversions. Therefore, the best approach to I now have a team of about 40 economists and strategists that trade liberalization is a multilateral rather than a regional or a bilat- work together to understand what’s happening in different coun- eral process. So, it’s not the end of the world if the talks stall for a bulletin 1/11 Credit Suisse Nouriel Roubini Leader 75 They sometimes say “ economists are two- handed; on the one hand, on the other hand.” few years. But restoring and ending them successfully would be fundamental basis, the dollar should be gradually depreciating useful and important. against emerging market currencies. But the process is blocked What do you wish someone had told you about becoming due to policy decisions being made by China and other countries an economist? to prevent that adjustment. I wish people had told me it’s referred to as a dismal science. In Tell us three facts about Nouriel Roubini the person, not some sense it isn’t. Understanding economics can mean that you the economist. are able to carry out the right policies that can change the world I would say my interests go well beyond just economics. I’m for the better. It isn’t just an intellectual discipline or a science. It’s interested in history, in politics and culture, in the arts. I collect also the art of what is possible. I discovered so much more about contemporary art, a lot of visual and performing arts. To under- being an economist then, when I first got into it. stand the world you have to also go beyond your own discipline Whether the market believes in a double dip or back to growth and have a broader Renaissance view of reality. Then, despite this for the global economy, what can we expect for the US dollar? nickname of Dr Doom, I’m quite an optimist. I believe in hard In both scenarios the dollar could strengthen, even in a weak work, in success, in enjoying life, as much as working hard. scenario. The only caveat being is that on a fundamental basis the I’m not that bleak a gloom and doom type of person that people dollar should be weakening because the US has a large current try and make me. Lastly, I think that my intellectual curiosity account deficit. To reduce it, the dollar has to depreciate. The and curiosity about the world set me apart. I spend two thirds of trouble is: depreciate against whom? Not against the euro or the my time traveling around the world. Understanding other parts yen, because those economies are weak. It should be weakening of the world is critical. Whether it’s Asia, Latin America, Europe against the Chinese and other Asian currencies that are underval- or Africa, you have to go visit countries and meet the people. ued and running current account surpluses. But as long as the From the m oment you arrive in a country and ask the chauffeur Chinese authorities don’t want to change their exchange regime, at the airport how the economy is doing and all the way to Photo: James Leynse, Corbis, Specter nobody else is going to let their currency appreciate. So on a meeting central bank governors, media, academics and so on. > Credit Suisse bulletin 1/11 76 Leader Nouriel Roubini You have to have a spectrum of knowledge and have that intellec- happen on a regulatory level? While high-grade corporates may tual passion and curiosity about the world. No national culture be sitting on a lot of cash, the high yields are in stress, and small is dominant. I find that every country, every culture, every religion and medium enterprises are still in a credit crunch. So there has attributes that are relevant. this subset of the corporate sector: the high-grade corporate sec- Would letting Greece restructure its debt have been tor that is lean and mean, and flush with cash, while many other the better solution? sectors are actually challenged. Why are they sitting on all this In my view, Greece will sooner rather than later restructure its cash and not increasing capex or increasing labor demand? It all debt. It’s not a question of whether, but rather when and how. has to do with the macroeconomic uncertainties; that final demand Even if Greece does everything right, they will end up with a public is still weak and that there still is excess capacity. I think a lot debt in the best-case scenario of 148 percent of GDP. That’s not of that cash may go to work in financial transactions, merger and a level that is sustainable. It doesn’t have to be a disorderly default acquisition activity, debt and share buybacks, replenishing pension like in the case of Russia, Argentina or Ecuador. It can be an plans, rather than real spending on capex and labor demand. orderly sovereign debt restructuring like in the case of Uruguay, You appear as yourself in Oliver Stone’s sequel to the movie Pakistan or Ukraine. “Wall Street.” If your warning in early 2007 about the dangers When a market prices in inflation, at the same time of complex finance would have been taken seriously, what would as deflation, isn’t that a paradox? be the story of the movie? There is significant uncertainty about which one of the various The movie is about the financial crisis that occurred. I don’t know outlooks for the global economies is going to materialize. I’m not if it would have made any difference in 2007. At that point, it saying it’s a flat distribution. In my view, certain scenarios are was already too late. The excesses of credit growth, debt and more likely than others. You can tell a story of muddling through leverage that occurred went on for a while longer. So the end of with low growth or about a recovery after a period of difficult this story would have been a painful one, regardless of what I times. You can think of a scenario in which we end up in a double was saying. Maybe the next story is one in which, if we have better dip which is deflationary, but in which large budget deficits then supervision and regulation in the financial system, we may be able get monetized in a way that they cause inflation. I think those to avoid the next financial crisis. The lesson of the movie is that views on a bipolar outcome of inflation reflect the underlying un- the bankers and traders of today are no more greedy than the certainty about the economic outlook on the one hand, and on Gordon Gekkos of the 1980s who said greed is good. the policy response to that economic and financial outlook on the In financial markets some greed and some profit motive is legit- other hand.