Ruh oh, What does Dr Doom Predict Next?

[California Girl]

,,,Dr Nouriel Roubini (world famous Economist), nicknamed Dr Doom for his dire predictions prior to those predictions becoming reality around the world. Smart, smart, smart man...

Not only did he predict the real estate crash of 2008, he also predicted property crashes in '02 and '05 too --that's three out of the past one crashes. OK, so he missed stocks doubling in value over the past four years but hey, nobody's perfect...

Hence the nickname. Good news is no news.

I think, more than anything, he's called the global economic catastrophes better than most.

 

[samjones]

,,,Dr Nouriel Roubini (world famous Economist), nicknamed Dr Doom for his dire predictions prior to those predictions becoming reality around the world. Smart, smart, smart man...

Not only did he predict the real estate crash of 2008, he also predicted property crashes in '02 and '05 too --that's three out of the past one crashes. OK, so he missed stocks doubling in value over the past four years but hey, nobody's perfect...

Hence the nickname. Good news is no news.

I think, more than anything, he's called the global economic catastrophes better than most.

Slightly better than average whackjob.

 

[Avorysuds]

Sounds like he is a Ron Paul fan... You know, just listening to his predictions and what he offers as a way to avoid the "doom."

 

[Wry Catcher]

Those who pay attention to the world outside our borders – and we really should since it impacts on us – will be aware that there was recently a World Economics Forum in Darvos, Switzerland.

Attending said Forum was Dr Nouriel Roubini (world famous Economist), nicknamed Dr Doom for his dire predictions prior to those predictions becoming reality around the world. Smart, smart, smart man. Nowadays, governments around the world listen to him… because he’s been right about so much shit hitting so many fans. I should, perhaps, mention that Dr Roubini is a Professor of Economics and International Business at NY University.

Now, I can’t provide you with a link to some crap media report about what he said at the forum… mainly because the media are either ignoring it or pandering to whatever political agenda best suits their reporting.

But…. What did he say? And who the hell is gonna listen? I can answer – in part – the first question ... He said:

The biggest coming issue is a potential conflict between the US (with Israel) and Iran. He predicts that conflict may lead to oil prices rocketing to $150 per barrel. That would, in turn, lead to another global recession.

He said both the US and Europe needs to radically reform to stop its debt mountain, otherwise the world economy will not recover and both will continue to see their standard of living fall. He is very pessimistic about both the EU and US taking the steps necessary to push themselves into a strong recovery.

He – and the IMF – say that the global economy is getting weaker… and they predict only 3.0-3.3% growth in the coming year. His prediction for US growth is between 1.7-1.8%.... and predicts that unemployment will remain high.

He mentioned issues with China becoming less stable because of its over reliance on foreign markets, and under-consumption (I have mentioned that one several times on the forum).

He talked about how too much debt in both the public and private sectors may take up to a decade to restablize.

In short, we need to clean up our balance sheet – as a nation and invest in the things that will make us more productive in the future.

So what did he suggest that nations do? Clean up our debt, and shift our investments from the ‘quick profit’ sectors such as finance and real estate to investing in our human capital (people), our structure, technology and innovation.

I think he’s right. We are America – a nation of innovators, entrepreneurs, and optimism.

Next question…. Who is listening to Dr Doom?

I don’t know…. But I really hope that Obama…. And whoever is next in line – are paying close attention in class.

Isn't this (So what did he suggest that nations do? Clean up our debt, and shift our investments from the ‘quick profit’ sectors such as finance and real estate to investing in our human capital (people), our structure, technology and innovation) what Obama has been advocating for the past three + years?

I haven't heard anything from the other side other than "drill baby drill" and cut, cut cut (taxes, regulations and health care).

No, he's been pandering to specific companies without giving a shit that his 'stimulus' funding for certain companies destroyed hundreds of very small, very focused high tech companies who were trying to develop better technology.

Please post 25 of the hundreds of companies Obama destroyed

He panders, he does not support taking the economic steps necessary to support business.

Such as drill baby drill, or being boxed into a corner to approve a pipe line without proper vetting

Oh and - congratulations on totally ignoring the real issues and trying to make this a 'high five' to your incompetent Messiah. But you failed.

I responded to your post, it seems to me Obama has move in the direction of human capital (Education and training for new technology); and support for new technology as well as advocating for repair and replacement of our infrastructure .

 

[freedombecki]

Iran seems determined to drive the world off a cliff. The fact they are facing such a moral zero as Obama only seems to encourage them. Obama passing them the keys to Iraq must put the mad mullahs in an especially celebratory mood.

What matters with the world economies in this era is cleaning up balance sheets. Obama went on a spending spree. I see no sign myself that Stimulus stimulated anything. Now we have all that debt to service, and that means all the important stuff has to be cut in order to do so.

This is going to be rough time no matter who is elected, but it will be a lot rougher under Obama.

I agree with you, Baruch. We have to clean up and balance the budget in America. That's the best thing that we as a nation can do for our brother and sister nations.

I'm glad you mentioned it could be rough times. I remember my mother telling me about some of the things they had to do during the depression and World War II when times and a war caused shortages to ensure that our soldiers had their needs taken care of on the seas, in the air, and on the battlefields. We might take a more caring attitude toward each other if times get tough.

 

[Paulie]

Oh, pardon me. Did Jefferson and Smith create a model of markets where monetary expansion caused business cycles? But even if they didn't, you're right. We should go with the spirit of Jefferson and Smith's will. It's not like we've amassed hundreds of years of knew knowledge since then.

You do realize that the idea of monetary expansion leading to business cycles is not exclusive to just Austrian theorists, right?

It's the largest group that uses it. I can't think of any other group that has a name that uses it.

There doesn't have to be a name for everyone. Everything doesn't have to be neatly grouped and divided. This may come as a shock to you, but there are actually still people in this world who think for themselves and take what they consider to be the best parts of MANY of the economic schools of thought. We've got a poster right here on this board who is case in point for that: Toro. He's not an Austrian by any definition, but can recognize when Federal Reserve inflationary policy leads to bubble creation.

As far as Jefferson and monetary expansion leading to bubbles...The very reason the fathers wanted only metals as legal tender was because of this. It's not like there isn't ample history of paper money being disastrous. The fathers tried to keep us from going that route by specifically deeming metals as legal tender, but of course we ruined it.

 

[DSGE]

You do realize that the idea of monetary expansion leading to business cycles is not exclusive to just Austrian theorists, right?

It's the largest group that uses it. I can't think of any other group that has a name that uses it.

There doesn't have to be a name for everyone. Everything doesn't have to be neatly grouped and divided. This may come as a shock to you, but there are actually still people in this world who think for themselves and take what they consider to be the best parts of MANY of the economic schools of thought.

The not having a name point is that if the movement were sufficiently large to have any noticeable impact on thought, it'd be named. The Austrian school is the largest group of people who think interest rate changes cause business cycles, and the size of that is dwarfed by the mainstream. The point is that it's irrelevant that there are other people who talk about interest rate business cycles, because those groups are small enough not to matter (with good cause, the idea doesn't stand up to cursory examination).

We've got a poster right here on this board who is case in point for that: Toro. He's not an Austrian by any definition, but can recognize when Federal Reserve inflationary policy leads to bubble creation.

Well in that case it's my prerogative to call him on it and present my case for why that's not true.

As far as Jefferson and monetary expansion leading to bubbles...The very reason the fathers wanted only metals as legal tender was because of this.

Ha! Economics as a field was only being born around that time. Seriously, it was only less than a hundred years ago that we caught on to the fact that money causes inflation, and you think Jefferson thought it caused bubbles?! Laughable.

 

[uscitizen]

Dr. Doom?
I thought from the title that this thread was about Ron Paul.

 

[Paulie]

It's the largest group that uses it. I can't think of any other group that has a name that uses it.

There doesn't have to be a name for everyone. Everything doesn't have to be neatly grouped and divided. This may come as a shock to you, but there are actually still people in this world who think for themselves and take what they consider to be the best parts of MANY of the economic schools of thought.

The not having a name point is that if the movement were sufficiently large to have any noticeable impact on thought, it'd be named. The Austrian school is the largest group of people who think interest rate changes cause business cycles, and the size of that is dwarfed by the mainstream. The point is that it's irrelevant that there are other people who talk about interest rate business cycles, because those groups are small enough not to matter (with good cause, the idea doesn't stand up to cursory examination).

We've got a poster right here on this board who is case in point for that: Toro. He's not an Austrian by any definition, but can recognize when Federal Reserve inflationary policy leads to bubble creation.

Well in that case it's my prerogative to call him on it and present my case for why that's not true.

As far as Jefferson and monetary expansion leading to bubbles...The very reason the fathers wanted only metals as legal tender was because of this.

Ha! Economics as a field was only being born around that time. Seriously, it was only less than a hundred years ago that we caught on to the fact that money causes inflation, and you think Jefferson thought it caused bubbles?! Laughable.

Present your case for why FR policy hasn't caused bubbles.

How could anyone have not understood what happens when you abandon sound money? Look what happened to the Roman Empire when they removed the precious metal content from their coins. Their currency was just another version of fiat currency at that point...A useless medium other than a government saying it was worth something. But it wasn't worth anything, and the empire died like all empires do.

There's no reason to assume Jefferson wasn't aware of why it's a bad idea to use fiat currency. Any scholar of that time was aware of the plight of the Roman empire.

 

[DSGE]

There doesn't have to be a name for everyone. Everything doesn't have to be neatly grouped and divided. This may come as a shock to you, but there are actually still people in this world who think for themselves and take what they consider to be the best parts of MANY of the economic schools of thought.

The not having a name point is that if the movement were sufficiently large to have any noticeable impact on thought, it'd be named. The Austrian school is the largest group of people who think interest rate changes cause business cycles, and the size of that is dwarfed by the mainstream. The point is that it's irrelevant that there are other people who talk about interest rate business cycles, because those groups are small enough not to matter (with good cause, the idea doesn't stand up to cursory examination).



Well in that case it's my prerogative to call him on it and present my case for why that's not true.

As far as Jefferson and monetary expansion leading to bubbles...The very reason the fathers wanted only metals as legal tender was because of this.

Ha! Economics as a field was only being born around that time. Seriously, it was only less than a hundred years ago that we caught on to the fact that money causes inflation, and you think Jefferson thought it caused bubbles?! Laughable.

Present your case for why FR policy hasn't caused bubbles.

Well first, you're making the positive statement, so the onus is on you to show that it does cause bubbles. But my last post on the ron paul inflation thread explains why monetary policy wasn't especially loose in the build up to the housing bubble: http://www.usmessageboard.com/economy/199181-the-ron-paul-types-and-inflation-5.html#post4736835

 

[expat_panama]

...the fathers wanted only metals as legal tender...

The colonies had issued paper money created by fractional bank reserves since the 1600's and the constitution gave congress the power to 'regulate the value' as it saw fit.

 

[EdwardBaiamonte]

Ha! Economics as a field was only being born around that time. Seriously, it was only less than a hundred years ago that we caught on to the fact that money causes inflation, and you think Jefferson thought it caused bubbles?! Laughable.

A liberal will get everything backwards!!

Jefferson:That paper money has some advantages, is admitted. But that its abuses also are inevitable, and, by breaking up the measure of value, makes a lottery of all private property, cannot be denied. Shall we ever be able to put a constitutional veto on it ?

 

[Toro]

We're not seeing a V shaped recovery because monetary policy is too tight. There are many parallels between the current situation and the Depression, the most important yet widely ignored one being that it's caused by falling nominal spending. It's infuriating when people look at interest rates or the monetary base and say "money is the loosest it's ever been". It's slightly more infuriating when people think fiscal stimulus is necessary. The Fed needs to be given an explicit NGDP level target and made accountable when that target isn't met.

We're not seeing a V-shaped recovery because we had an asset bubble which collapsed, and too much legacy debt. -10% interest rates wouldn't change the fact that we had 8 million too many homes. It's pushing on a string.

And gold is at $1700.

I agree with the OP.

 

[itfitzme]

It would be interesting to know how "a conflict between the US (with Israel) and Iran "would drive up oil prices. I see no reason why a prediction should not include a description of the mechanism.

Iran, and Israel, do not supply the U.S. They account for 4% of the world supply. Oil prices and gasoline prices do not follow the ideal laws of supply and demand. Oil refining and fuel supply are oligopolies that enjoy profits. Profits are the key indicator of a market that is not perfectly competitive. As such, the price of gasoline is driven by the consumers willingness to pay, profit + cost. Remember, profit is after salaries and taxes, including the CEO salary. The pump price reflects the refineries continuous testing of the market to maximize profit by maximizing price * quantity. Oil producers do the same, with ability to increase price carrying the market information up the supply chain.

While supply shocks that cause major disruption in the world supply can have an effect, it has to be a rather large disruption. To trigger a recession, the disruption would have to be large enough and long enough for it to cause demand for other products to fall. Small disruptions are temporary.

I am just not seeing this one.

There are 64 countries on the list of U.S. oil import countries. Iran is not on the list.

The top ten countries include;

.............................Thousands
Origin....................... Barrels......%Total
Canada.......................83452......24.5%
Mexico........................36474.....10.7%
Saudi Arabia...............34714......10.2%
Venezuela.................. 27722.......8.1%
Nigeria....................... 21393........6.3%
Russia.........................21309........6.3%
Colombia....................17918........5.3%
Iraq...........................15189........4.5%
Angola........................13156........3.9%
Kuwait....................... 8616........2.5%

Factors increasing prices are increased demand and reduced supply...I suppose a conflict might result in more demand due to the increase in military use...Disruption of supply routes and "hording" by speculators reduce restrict supply.

Saudi Arabia, Iraq, and Kuwait stand out as being "in that region"...They account for 17% of US Oil Imports.

In terms of regions, where the Persian Gulf is part of OPEC and separated out by the EIA, is listed below. OPEC accounts for about 39% of US imports.

............................ Thousands
Origin......................Barrels...........%Total
Non-OPEC...............208550.............61%
OPEC......................132271.............39%
..Persian Gulf............ 59034...........17%

Prices are a function of the global market, so a disruption in the supply for OPEC oil would still drive up prices from Canada and Mexico...And, of course, if speculators decide that a conflict will drive up prices, then they may hold supply off shore waiting for an increase and thus causing an increase.

In terms of global exports by country, the top ten are;

Country/Region.................(bbl/day)......... Percent
Russia...........................7,400,000......... 11.61%
Saudi Arabia................. 7,322,000......... 11.48%
Iran...............................2,400,000........... 3.76%
United Arab Emirates.......2,395,000........... 3.76%
Norway......................... 2,150,000........... 3.37%
Kuwait...........................2,127,000............ 3.34%
Nigeria..........................2,102,000............ 3.30%
Canada......................... 1,929,000............ 3.03%
United States.................1,920,000............. 3.01%
Iraq..............................1,910,000............ 3.00%

So Iran does supply a percentage of the world oil, but it is about 3.8% of the total supply. Israel ranks 68 at 0.12%.

And a recent news article suggests;
"Iran Oil Ban Would Hurt EU, Boost Price: OPEC CNBC
Any decision by Iran to cut oil exports to the European Union will affect the price of oil and hurt the region's economy, OPEC Secretary General Abdalla .."

Still, I would like to know what the mechanism is that predicts increased prices due to a conflict with Iran, involving Israel. Iran supplies 3.76% of world oil and none of the US consumption. And while OPEC may suggest that it would, OPEC claiming a reason to raise prices seems a bit biased. We know how well OPEC, as a group, has been at controlling prices, not much. They supply about 35% of both U.S. and the world demand. It seems to me that whatever the mechanism is that should lead to increased prices, it must be a indirect. We know how predictions that rely on indirect affects go, not well.

The thing about the laws of supply and demand that we love so dearly is that they are based on perfectly competitive markets. Oil refining and fuel supply is not a perfectly competitive market. It is an oligopoly market. Profit is the indicator of market that is not perfectly competitive.

Even then, the supply and demand laws do not require that lower supply leads directly to higher prices. It all depends.

Higher prices for oil translate directly to higher prices at the pump. If supply shifts and demand shifts at the same time, prices remain the same. Just as well, the price of gas is cost + profit. We know it is because the oil refineries report record profits. Prices at the pump are driven by the absolute maximum that the consumer is willing to pay. And the price of a barrel of oil, in spite of what the producers claim, is driven similarly, with oil speculators and producers putting upward pressure to get the highest price they can.

I was trying to determine the difference between the cost gasoline and the cost of the oil. According to Oil Industry Statistics from Gibson Consulting - oil barrels, the volume changes during production. So, trying to use 1 barrel = 19.5 gallons of gasoline doesn't work as a barrel also produced fuel oil, diesel, jet fuel and other products. However they get to it, a $37 barrel of crude represent $0.88 to start with. Current price of Cushings Crude is 100/barrel.

A $100 barrel represents $2.38 in oil cost per gallon of gasoline which sells at $3.50. The station gets about 3 cents, so the refinery gets about $3.47. You know, of course, that the refinery decides what the station will price gasoline at. They check the volume sold daily and adjust accordingly. That puts the profit + production + taxes at $1.09 per gallon of gasoline sold. Other numbers are close. I get that the costs per gallon of gasoline are;

Dist cost+Profit............$0.19
Crude Oil Cost.............$2.62
Refiner cost + Profit.....$0.19
Storage Fee................$0.02
State Local Tax............$0.08
State Excise Tax..........$0.36
Federal Excise Tax.......$0.18
Price per gallon...........$3.64

It would be nice to know what that production cost is in that 19 cents per gallon. Is it two cents or ten cents per gallon? It may or may not be a lot, depending on what production per gallon is. Never the less, we know that they report record profits at a level higher than all other products. (check this) Still, it is a volume thing, profits divided over the total volume sold. The production is a continuous process with fixed costs (and maintenance) divided over the total volume. I get that they see a huge volume which also accounts for huge profit. And at 3-5 cents profit per gallon at the pump, we might expect at least 3-5 cents per gallon at the refinery. This tends to be a typical rule of the equilibrium of supply and demand, that the profit gets split. That is at least 25% profit per gallon.

Exxon reported $30.5 billion profit in 2010. Unfortunately, that includes all products so we are not going to get to profit on gasoline this direction

My point is that, in spite of the barrel cost, there is every reason to believe that the price, of both gasoline and oil, is as much a function of what the consumer can fork out before they start driving less. And that information gets transmitted up the supply chain to refineries, futures traders, speculators, and the oil producers.

And, I remain skeptical that a conflict with Iran can be considered as a major factor given it's small input to the world supply and the lack of U.S. supply. Even if it has a minor effect, supply shock needs to be rather large and sustained to affect the feedback of demand and employment that leads to a recession.

I am, unfortunately, not allowed to post the reference links.

itfitzme.wordpress.com

 

[Toro]

But did you accurately forecast each and every clusterfuck that got us here?

He did. He was talking about a 'perfect storm' of economic chaos when the rest of the world was 'living the dream'. He told us it would be a nightmare. He was right.

So did the entire field of Austrian School theorists, while the media laughed them off interviews and marginalized them in their reporting every chance they got.

I mean no offense to you by this, but I'm not all that much impressed anymore by any one specific person's ability to have predicted this economic mess, because there were plenty of people.

Really? You mean they didn't do their same old schtick that "low interest rates cause bubbles" like they've been doing for the past 70 years. Stopped clock and all.

Of course if you can provide an Austrian who brought our attention to the importance of asset-backed securities and collateralized debt obligations in allowing banks to become highly leveraged, the misrating of risky assets as AAA, and the problems of management being incentivised to pursue short-run profit; then I'll give credit where it's due. If it's the same old "the Fed causes bubblz!" garbage, I'm gonna keep laughing.

The Fed causes bubbles.

But all those other things you mentioned contribute also.

 

[Toro]

,,,Dr Nouriel Roubini (world famous Economist), nicknamed Dr Doom for his dire predictions prior to those predictions becoming reality around the world. Smart, smart, smart man...

Not only did he predict the real estate crash of 2008, he also predicted property crashes in '02 and '05 too --that's three out of the past one crashes. OK, so he missed stocks doubling in value over the past four years but hey, nobody's perfect...

He did a helluva lot better than the bozos at the Fed who said in 2006 real estate reflected strong fundamentals!

 

[Toro]

We've got a poster right here on this board who is case in point for that: Toro. He's not an Austrian by any definition, but can recognize when Federal Reserve inflationary policy leads to bubble creation.

Well in that case it's my prerogative to call him on it and present my case for why that's not true.

Paulie is partly correct. I was an Austrian during undergrad. I grew up on a diet of Bastiat, von Mises et al but abandoned it when I entered the capital markets and realized that most economists generally have little practical understanding of markets. Austrians are too dogmatic but I generally agree that inflation is not a general rise in prices but instead inflation is the creation of too much money while a general rise in prices is symptomatic of this increase.

And FTR I'm very skeptical of a gold standard.

 

[DSGE]

We're not seeing a V shaped recovery because monetary policy is too tight. There are many parallels between the current situation and the Depression, the most important yet widely ignored one being that it's caused by falling nominal spending. It's infuriating when people look at interest rates or the monetary base and say "money is the loosest it's ever been". It's slightly more infuriating when people think fiscal stimulus is necessary. The Fed needs to be given an explicit NGDP level target and made accountable when that target isn't met.

We're not seeing a V-shaped recovery because we had an asset bubble which collapsed, and too much legacy debt. -10% interest rates wouldn't change the fact that we had 8 million too many homes. It's pushing on a string.

And gold is at $1700.

I agree with the OP.

Why do you think an asset bubble collapse would have such a pronounced effect on the broader economy? The crucial thing about this bubble was that everybody became highly leveraged to buy into it. As you point out, there's too much debt overhang and everybody is still trying to deleverage. But why does deleveraging effect the real economy? If everybody is trying to save more, and on aggregate we have an excess of savings and a shortage of investment, why doesn't the interest rate just fall to equilibrate savings and investment, restoring full employment? The zero lower bound comes in here. Does that mean monetary policy can't do anything since nominal interest rates can't drop further? Of course not. They can still lower the real interest rate as much as they like by creating expectations of a higher price level/NGDP level. Bottom line, the bubble story effects the economy through aggregate demand, not its supply potential, and aggregate demand can always be controlled by monetary policy.

A more intuitive way to think about deleveraging is that NGDP, or nominal income, is the resources the economy has to pay down nominal debts. But the Fed allowed NGDP to fall 9% below trend in 2008! Our ability to deleverage has been sabotaged by a tight monetary policy.

 

[DSGE]

So did the entire field of Austrian School theorists, while the media laughed them off interviews and marginalized them in their reporting every chance they got.

I mean no offense to you by this, but I'm not all that much impressed anymore by any one specific person's ability to have predicted this economic mess, because there were plenty of people.

Really? You mean they didn't do their same old schtick that "low interest rates cause bubbles" like they've been doing for the past 70 years. Stopped clock and all.

Of course if you can provide an Austrian who brought our attention to the importance of asset-backed securities and collateralized debt obligations in allowing banks to become highly leveraged, the misrating of risky assets as AAA, and the problems of management being incentivised to pursue short-run profit; then I'll give credit where it's due. If it's the same old "the Fed causes bubblz!" garbage, I'm gonna keep laughing.

The Fed causes bubbles.

How do you figure?

 

[DSGE]

We've got a poster right here on this board who is case in point for that: Toro. He's not an Austrian by any definition, but can recognize when Federal Reserve inflationary policy leads to bubble creation.

Well in that case it's my prerogative to call him on it and present my case for why that's not true.

Paulie is partly correct. I was an Austrian during undergrad. I grew up on a diet of Bastiat, von Mises et al but abandoned it when I entered the capital markets and realized that most economists generally have little practical understanding of markets. Austrians are too dogmatic but I generally agree that inflation is not a general rise in prices but instead inflation is the creation of too much money while a general rise in prices is symptomatic of this increase.

Well a rise in the general level of prices is the definition of inflation mainstream economists use. It's strange to hear somebody say "i think inflation is really this...". If you mean the important thing we should be focusing on is monetary expansion, then that's fine. Except there's no need to redefine "inflation" because A) it's only going to confuse everybody and B) there's already a phrase for it, "monetary expansion".

How do we tell if "too much money" is being created, if not through price inflation? Obviously we look at nominal GDP. Nominal GDP (price level*real output) is nominal spending, so if new money is having an effect on the economy it will either raise the price level or it'll raise real output or both. For the money to have an effect, it has to be spent, right? And if it's spent it shows up in NGDP. If NGDP doesn't rise, that means people are just holding on to the money; it's satisfying an increase in the demand for money. This is what Hayek wanted in his later life, a constant NGDP target. Something that only introduced new money if the demand for money changed so that total nominal spending would be constant.

And FTR I'm very skeptical of a gold standard.

Yeah well what Austrians should be pushing for is Free Banking. I never understood this gold fetish. Do they not understand that you can just freeze the monetary base?