Tuesday, April 13, 2010

Roubini: Debt Crisis Will Hit U.S. Within Three Years

A debt crisis will impact the United States within the next three years, according to economist  Nouriel Roubini.

Roubini made the comment during a panel  discussion on the economy, held at the American Enterprise Institute. He specifically identified California, Florida, Nevada and Arizona as some of the states that are facing severe financial crises.

Only slightly tongue-in-cheek, he said the crisis could lead to the breakup of the , "American Monetary Union,"  especially  if  California again issues script to pay its bills, and other states follow.

He called the the idea that the Treasury had made a profit on the bailout of various banks a false notion. He said the government pumped money into the banks 20 different ways and that the Treasury was only getting some of  that money back,  not true profit.

He estimated that the government will lose between 10% and 20% of a full year's GDP from the bailouts.

During the Q&A, I asked him if he expected the Chinese to continue buying Treasury securities. He said that he only expected the Chinese to move marginally on the revaluation of the currency and that meant they would continue to buy Treasury debt to manage their currency.

In other comments he said that, "inflation is a sleazy form of taxation," that Greece is just the tip of the iceberg as far as the the eurozone crisis, that  Greece is insolvent and illiquid and that Spain is in worse shape.

When I asked hid him about the great debate at NYT between Andrew Ross Sorkin and Paul Krugman, over whether he called for an nationalization of the entire banking system. He stood with Krugman in saying that he did not call for such, but only for a temporary nationalization of certain banks "Swedish style."

I did not have time to question him over the madness of any bank nationalization as he was headed to the car to catch a flight, but I did tell him that I was an Austrian economist, so I didn't go along with his Keynesian  theories, but as far as his data watching  and analysis it is among the best, which I believe is absolutely accurate.

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