Economist Roubini: "The markets are
completely delusional."
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Economist Roubini on the Economic Effects of Coronavirus
"This Crisis Will Spill Over and Result in a
Disaster"
Economist Nouriel Roubini correctly predicted the
2008 financial crisis. Now, he believes that stock markets will plunge by 30 to
40 percent because of the coronavirus. And that Trump will lose his re-election
bid.
Interview
Conducted by Tim Bartz
27.02.2020,
18:04 Uhr
Nouriel
Roubini is one of the most prominent and enigmatic economists in the world. He
correctly predicted the bursting of the U.S. housing bubble in addition to the
2008 financial crisis along with the ramifications of austerity measures for
debt-laden Greece. Roubini is famous for his daring prognostications and now,
he has another one: He believes that coronavirus will lead to a global economic
disaster and that U.S. President Donald Trump will not be re-elected as a
result.
DER
SPIEGEL: How severe is the coronavirus outbreak for China and for the global
economy?
Roubini:
This crisis is much more severe for China and the rest of the world than
investors have expected for four reasons: First, it is not an epidemic limited
to China, but a global pandemic. Second, it is far from being over. This has
massive consequences, but politicians don’t realize it.
DER
SPIEGEL: What do you mean?
Roubini:
Just look at your continent. Europe is afraid of closing its borders, which is
a huge mistake. In 2016, in response to the refugee crisis, Schengen was
effectively suspended, but this is even worse. The Italian borders should be
closed as soon as possible. The situation is much worse than 1 million refugees
coming to Europe.
DER
SPIEGEL: What are your other two reasons?
Roubini:
Everyone believes it’s going to be a V-shaped recession, but people don’t know
what they are talking about. They prefer to believe in miracles. It’s simple
math: If the Chinese economy were to shrink by 2 percent in the first quarter,
it would require growth of 8 percent in the final three quarters to reach the 6
percent annual growth rate that everyone had expected before the virus broke
out. If growth is only 6 percent from the second quarter onwards, which is a
more realistic scenario, we would see the Chinese economy only growing by 2.5
to 4 percent for the entire year. This rate would essentially mean a recession
for China and a shock to the world.
"The
Chinese government will need a scapegoat."
DER SPIEGEL: And your last point?
Roubini:
Everyone thinks that policymakers will react swiftly but that’s also wrong. The
markets are completely delusional. Look at fiscal policy: You can do fiscal
stuff only in some countries like Germany, because others like Italy don’t have
any leeway. But even if you do something, the political process requires a
great deal of talking and negotiating. It takes six to nine months, which is
way too long. The truth is: Europe would have needed fiscal stimulus even
without the corona crisis. Italy was already on the verge of a recession, as
was Germany. But German politicians aren’t even thinking about stimulus,
despite the country being so exposed to China. The political response is a joke
- politicians are often behind the curve. This crisis will spill over and
result in a disaster.
DER
SPIEGEL: What role do the central banks have to play?
Roubini:
The European Central Bank and the Bank of Japan are already in negative
territory. Of course, they could lower rates on deposits even further to
stimulate borrowing but that wouldn’t help the markets for more than a week.
This crisis is a supply shock that you can’t fight with monetary or fiscal
policy.
DER
SPIEGEL: What will help?
Roubini:
The solution needs to be a medical one. Monetary and fiscal measures do not
help when you have no food and water safety. If the shock leads to a global
recession, then you have a financial crisis, because debt levels have gone up
and the U.S. housing market is experiencing a bubble just like in 2007. It
hasn’t been a time bomb so far because we have been experiencing growth. That
is over now.
DER
SPIEGEL: Will this crisis change the way the Chinese people think of their
government?
Roubini:
Businesspeople tell me that things in China are much worse than the government
is officially reporting. A friend of mine in Shanghai has been locked in his
home for weeks now. I don’t expect a revolution, but the government will need a
scapegoat.
DER
SPIEGEL: Such as?
Roubini:
Already, there were conspiracy theories going around about foreign interference
when it comes to swine flu, bird flu and the Hong Kong uprising. I assume that
China will start trouble in Taiwan, Hong Kong or even Vietnam. They’ll crack
down on protesters in Hong Kong or send fighters over Taiwanese air space to provoke
the U.S. military. It would only take one accident in the Strait of Formosa and
you would see military action. Not a hot war between China and the U.S., but
some form of action. This is what people in the U.S. government like Secretary
of State Mike Pompeo or Vice President Mike Pence want. It’s the mentality of
many people in D.C.
DER
SPIEGEL: This crisis is obviously a setback for globalization. Do you think
politicians like Trump, who want their companies to abandon production abroad,
will benefit?
Roubini: He
will try to reap benefits from this crisis, that’s for sure. But everything
will change when coronavirus reaches the U.S. You can’t build a wall in the
sky. Look, I live in New York City and people there are hardly going to
restaurants, cinemas or theaters, even though nobody there has been infected by
the virus thus far. If it comes, we are totally fucked.
"Trump
is dead. Quote me on that!"
DER SPIEGEL: A perfect scare-scenario for Trump?
Roubini:
Not at all. He will lose the election, that’s for sure.
DER
SPIEGEL: A bold prediction. What makes you so sure?
Roubini:
Because there is a significant risk of a war between the U.S. and Iran. The
U.S. government wants regime change, and they will bomb the hell out of the
Iranians. But Iranians are used to suffering, believe me, I am an Iranian Jew,
and I know them! And the Iranians also want regime change in the U.S. The
tensions will drive up oil prices and lead inevitably to Trumps defeat in the
elections.
DER
SPIEGEL: What makes you so sure?
Roubini:
This has always the case in history. Ford lost to Carter after the 1973 oil
shock, Carter lost to Reagan due to the second oil crisis in 1979, and Bush
lost to Clinton after the Kuwait invasion. The Democratic field is poor, but
Trump is dead. Quote me on that!
DER
SPIEGEL: A war against Iran is needed to beat Trump?
Roubini:
Absolutely, and it’s worth it. Four more years of Trump means economic war!
DER
SPIEGEL: What should investors do to brace for the impact?
Roubini: I
expect global equities to tank by 30 to 40 percent this year. My advice is: Put
your money into cash and safe government bonds, like German bunds. They have
negative rates, but so what? That just means that prices will rise and rise -
you can make a lot of money that way. And if I am wrong and equities go up by
10 percent instead, that’s also OK. You have to hedge your money against a
crash, that is more important. That’s my motto: "Better safe than
sorry!"
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