In mid-July, world renowned economist Nouriel Roubini sat down with Chronicle.SU’s Anton OyVey for a fireside chat at Bohemian Grove 2011. They discussed the next 18 months of world events, including the Debt Crisis and stock market crash. Much of the discussion was deemed “off the record” by Nouriel, but after a little arm twisting he agreed to sign off on the release of the following excerpt.
Anton: Thanks for the rim job earlier in Kissinger’s tent.
Nouriel: It was my pleasure. Great to share life, love and good wine with you again.
Anton: Stop it.
Nouriel: Did you see what Mohamed A. El-Erian got me?
Anton: Yes and that’s not where it was meant to be inserted.
Anton: Seriously tho… I want to talk a little bit about the next year in world events. Word around the Grove is the Debt Crisis is going to be center stage and you are going to be a busy bee over the next year. Is Doctor Doom about to go viral again?
Nouriel: Let’s just say my calendar is booked solid for the next 18 months, but I will still make time for good wine and cheap women.
Anton: Ben Bernanke’s cabana boy told me that Quantitative Easing Three (QE3) is on it’s way and you are going to be a big proponent again. Do you really believe QE3 will be effective in stimulating growth or should the Federal Reserve be taking another approach?
Nouriel: Economic growth in the US and most developed economies is anaemic at best. Measures of inflation, both core and headline, are below the implicit and explicit targets of the Federal Reserve. The scenario has been and will always be low growth, low inflation and an unemployment rate close to 10 per cent. If you run the numbers, you get that the Fed Funds rate should be around minus 5 percent, but nominal policy rates have a zero lower bound.
Quantitative Easing by the US and other governments has been increasing liquidity to effectively push the real policy rate below zero. Some $600bn of additional liquidity in QE2 was the equivalent of a reduction of about 50-60 basis points in the FFR. When Ben Bernanke says this is just a variant of traditional monetary policy, I think that is correct, even if unconventional. But we both know how Ben likes to stay on top of things…
Nouriel: I love good wine.
Anton: There’s been a healthy buzz at the Grove about next month’s market crash. Is now a good time to short equities?
Nouriel: Absolutely. The Dow Jones will drop over nine thousand points over the course of several months, starting in August. As you know, global investors have concluded that Obama will only be a one term president and have shifted resources to the GOP. No surprise about Governor Perry. He has an amazing dimple on his ass by the way.
Anton: You are such a pervert.
Nouriel: I can afford to be. I’m Doctor Doom damn it! (grabs wine bottle) More wine?
Anton: No thanks. So what kind of recovery can we expect?
Nouriel: We are looking at an unprecedented recovery pattern. I initially thought we were looking at a “U” shape recovery. After further analysis, it seemed a “W” recovering was in order. But not so fast. The Eurozone and Asian markets have a lot of say in this too. That’s why I’m predicting a “WVW” reccovery. That’s a quintuple dip recession for those scoring at home. More wine?
Anton: No. I’m not drinking.
Nouriel: I told Charlie Rose I’d meet him in Donald Sutherland’s tent in 5 minutes. You coming?
Anton: No. I need to rest my corn hole.