A new Nouriel Roubini Blog

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Nouriel Roubini is one of the world’s fore­most experts on the finan­cial sys­tem, and like me, was warn­ing of poten­tial crises while most other com­men­ta­tors could only see roses bloom­ing. He is Pro­fes­sor of Eco­nom­ics at New York University’s Stern School of Busi­ness, and founded the RGE Mon­i­tor, a highly suc­cess­ful com­mer­cial intel­li­gence web­site. He has recently estab­lished a new blog with a focus on Asia, and has kindly asked me to be one of the con­trib­u­tors.

Nor­mally I will sim­ply cross-post my Debt­watch blog, but on occa­sions I’ll write spe­cial pur­pose entries there. Nouriel has also assem­bled an inter­est­ing team of non-ortho­dox com­men­ta­tors from the aca­d­e­mic and busi­ness sec­tors.

The site goes live on Mon­day May 12th 2008, and I rec­om­mend it to read­ers here. Its URL is:

http://www.rgemonitor.com/asia-monitor

 

About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
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  • Iain

    Your com­ments open up a whole new vista with respect to eco­nom­ics and how we mea­sure and under­stand eco­nomic per­for­mance and well being. For instance enabling the effec­tive mea­sure­ment of exter­nal­i­ties in terms of the envi­ron­men­tal impacts of increased eco­nomic activ­ity and growth and the under­ly­ing causal­ity within the econ­omy — that is expen­di­ture on A to do B does not always result in an over­all eco­nomic ben­e­fit. An exam­ple would be that increased expen­di­ture on crime pre­ven­tion ser­vices and tech­nol­ogy is mea­sured as pos­i­tive con­trib­u­tor to GDP growth but this is may be a response to a decline in per­sonal safety and secu­rity which not ade­quately mea­sured and con­sid­ered.

  • Al the Pal

    I agree these are dan­ger­ous debt lev­els. How­ever

    1)You make the com­par­i­son as to what is a safe debt level by com­par­i­son to the val­ues just before the great depres­sion around 1929–1932. How­ever isnt a higher level of debt safer now, as there is more capac­ity as part of nor­mal income to ser­vice that debt. A greater per­cent­age of income is avail­able now that then to ser­vice debt as a result of higher liv­ing stan­dards.

    2) The graphs show US debt at 260% of GDP and ours around 160% of GDP. That indi­cates that if the US hit a level of col­lapse at 260% lev­els with a 5% inter­est rate on home­own­ers. So with 160% and 9% are we also at this point or lower than this point? 

    I dont think you can build a log­i­cal argu­ment for dan­ger with­out address­ing these two areas as well.

  • Ken

    The prob­lem is that we’re using the stim­u­lus pro­vided by the new debt to pay the inter­est on the debt. Once debt stops expand­ing at ridicu­lous rates it will become dif­fi­cult to pay the inter­est on the exist­ing debt as wages and prof­its drop and unem­ploy­ment increases. Steve in another com­ment men­tioned that there were ways of deter­min­ing where the econ­omy was going and I assume a good one is the flows of money into the econ­omy through debt. What is hap­pen­ing in Amer­ica is the reduced bor­row­ing is now start­ing to affect the wider econ­omy.

    To show that risk is real all that is needed is a look at the early nineties. Only this time the start­ing inter­est rate is much lower which will prob­a­bly result in a lot less abil­ity to reduce inter­est rates. The world seems to have some faith in the US dol­lar but I’m cer­tain they wont be buy­ing Aus­tralian dol­lars to invest at 2%. Our inter­est rates drop too low and the Aus­tralian dol­lar col­lapses.

  • You’ve pretty much given the answer for me Ken,

    But I will also do next two posts on these topics–why the cur­rent debt over­hang mat­ters, and why the debt to income ratio is the best guide to it.

    Also Iain, there is a com­mon ten­dency to think that “now is dif­fer­ent” and pro­pose that, as you say, we have a higher debt ser­vic­ing capac­ity now than in the past. That may be true–though I doubt it–but even if so, it could be turned around very rapidly with a global-warming/peak oil induced spike to com­mod­ity prices.

    The point is that we should have man­aged our finan­cial affairs so that there was a large buffer between us and changes in exter­nal cir­cum­stances. Instead, we’ve so increased the debt ser­vic­ing costs of the econ­omy that we are extremely vul­ner­a­ble to a change in cir­cum­stances. I think that change is com­ing, on top of astro­nom­i­cal debt ser­vic­ing costs despite com­par­a­tively low inter­est rates.

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