Thursday, January 12, 2017

Roubini on Bloomberg TV Jan 2017



Click the above video to watch the full interview

Monday, January 9, 2017

Protectionism and Nationalist policies could lead to more conflict around the world

Donald Trump’s election as president of the United States does not just represent a mounting populist backlash against globalization. It may also portend the end of Pax Americana — the international order of free exchange and shared security the U.S. and its allies built after World War II.

That U.S.-led global order has enabled 70 years of prosperity. It rests on market-oriented regimes of trade liberalization, increased capital mobility, and appropriate social-welfare policies; backed by American security guarantees in Europe, the Middle East, and Asia, through NATO and various other alliances.

Trump, however, may pursue populist, anti-globalization, and protectionist policies that hinder trade and restrict the movement of labor and capital. And he has cast doubt on existing U.S. security guarantees by suggesting he will force America’s allies to pay for more of their own defense. If Trump is serious about putting “America first,” his administration will shift U.S. geopolitical strategy toward isolationism and unilateralism, pursuing only the national interests of the homeland.

When the U.S. pursued similar policies in the 1920s and 1930s, it helped sow the seeds of World War II. Protectionism, starting with the Smoot-Hawley Tariff, which affected thousands of imported goods, triggered retaliatory trade and currency wars that worsened the Great Depression. More important, American isolationism — based on a false belief that the U.S. was safely protected by two oceans — allowed Nazi Germany and Imperial Japan to wage aggressive war and threaten the entire world. With the attack on Pearl Harbor in December 1941, the U.S. was finally forced to take its head out of the sand.

Today, too, a U.S. turn to isolationism and the pursuit of strictly U.S. national interests may eventually lead to a global conflict. Even without the prospect of American disengagement from Europe, the European Union and the eurozone already appear to be disintegrating, particularly in the wake of the United Kingdom’s June Brexit vote and Italy’s failed referendum on constitutional reforms in December. Moreover, in 2017, extreme anti-Europe left- or right-wing populist parties could come to power in France and Italy, and possibly in other parts of Europe.

Without active U.S. engagement in Europe, an aggressively revanchist Russia will step in. Russia is already challenging the U.S. and the EU in Ukraine, Syria, the Baltics, and the Balkans, and it may capitalize on the EU’s looming collapse by reasserting its influence in the former Soviet bloc countries, and supporting pro-Russia movements within Europe. If Europe gradually loses its U.S. security umbrella, no one stands to benefit more than Russian President Vladimir Putin.

Trump’s proposals also threaten to exacerbate the situation in the Middle East. He has said that he will make America energy independent, which entails abandoning U.S. interests in the region and becoming more reliant on domestically produced greenhouse-gas-emitting fossil fuels. And he has maintained his position that Islam itself, rather than just radical militant Islam, is dangerous. This view, shared by Trump’s incoming national security adviser, General Michael Flynn, plays directly into Islamist militants’ own narrative of a clash of civilizations.

Meanwhile, an “America first” approach under Trump will likely worsen the longstanding Sunni-Shia proxy wars between Saudi Arabia and Iran. And if the U.S. no longer guarantees its Sunni allies’ security, all regional powers — including Iran, Saudi Arabia, Turkey, and Egypt — might decide that they can defend themselves only by acquiring nuclear weapons, and even more deadly conflict will ensue.

In Asia, U.S. economic and military primacy has provided decades of stability; but a rising China is now challenging the status quo. U.S. President Barack Obama’s strategic “pivot” to Asia depended primarily on enacting the 12-country Trans-Pacific Partnership, which Trump has promised to scrap on his first day in office. Meanwhile, China is quickly strengthening its own economic ties in Asia, the Pacific, and Latin America through its “one belt, one road” policy, the Asian Infrastructure Investment Bank, the New Development Bank (formerly known as the BRICS bank), and its own regional free-trade proposal to rival the TPP.

If the U.S. gives up on its Asian allies such as the Philippines, South Korea, and Taiwan, those countries may have no choice but to prostrate themselves before China; and other U.S. allies, such as Japan and India, may be forced to militarize and challenge China openly. Thus, an American withdrawal from the region could very well eventually precipitate a military conflict there.

As in the 1930s, when protectionist and isolationist U.S. policies hampered global economic growth and trade, and created the conditions for rising revisionist powers to start a world war, similar policy impulses could set the stage for new powers to challenge and undermine the American-led international order. An isolationist Trump administration may see the wide oceans to its east and west, and think that increasingly ambitious powers such as Russia, China, and Iran pose no direct threat to the homeland.

But the U.S. is still a global economic and financial power in a deeply interconnected world. If left unchecked, these countries will eventually be able to threaten core U.S. economic and security interests — at home and abroad — especially if they expand their nuclear and cyber-warfare capacities. The historical record is clear: protectionism, isolationism, and “America first” policies are a recipe for economic and military disaster.

Wednesday, December 14, 2016

Roubini on Trumps Carrier deal and US Dollar


Trump saved 1K jobs in Indiana and already DESTROYED 370K jobs given the Trump-led dollar appreciation.
Trump pictured with Robert Kiyosaki of the Rich Dad Poor Dad author

Monday, December 12, 2016

Asians wondering about the political changes and Trump tsunami

Monday, November 21, 2016

Donald Trump, Markets and Janet Yellen


When Donald Trump defeated Hillary Clinton in the United States’ presidential election, the market’s immediate negative response was to be expected. But by the next day, the market’s downward turn had already reversed itself.

US equities and bond yields rallied after Trump delivered a victory speech that seemed to signal that he was tacking to the center, which investors had originally expected him to do this summer, after he won the Republican nomination and entered the general election campaign. In his speech, Trump promised to be a president for all Americans, praised Clinton for her past public service, and vowed to pursue massive fiscal-stimulus policies centered on infrastructure spending and tax cuts for corporations and the wealthy.

Markets will give Trump the benefit of the doubt, for now; but investors are now watching whom he appoints to his administration, what shape his fiscal policies actually take, and what course he charts for monetary policy.

They may be watching monetary policy most closely. During his campaign, Trump threatened the US Federal Reserve’s independence, and heaped criticism on Fed Chair Janet Yellen. But Trump is a real-estate mogul, so we cannot immediately assume that he is a true monetary-policy hawk, and not a closet dove. His campaign rhetoric may have been directed at the Republican Party base, which is full of Fed-bashing gold bugs.

Trump could appoint hawks to the two Fed Board seats that are currently vacant, and he will certainly replace Yellen when her term expires in 2018. But it is unlikely that he will force her to resign before then, because markets would punish such an obvious violation of central-bank independence.

Even if Trump does choose a hawk to replace Yellen, his appointee would be only primus inter pares on the Federal Open Market Committee. Yellen’s successor would not be able simply to impose his or her view on the FOMC’s seven-member Board of Governors and five Reserve Bank presidents.

While the Fed did resemble an absolute monarchy under former Chairman Alan Greenspan, it became more of a constitutional monarchy under Greenspan’s successor, Ben Bernanke. Under Yellen, it might best be described as a democratic republic. This transformation cannot be reversed: each FOMC member holds strong views about which direction monetary policy should take, and each is willing to dissent when needed.

This means that a radical hawk appointed by Trump could end up in the minority, and would be consistently outvoted by the FOMC’s dovish majority. Of course, Trump may be able to change the Fed Board’s composition over time, by appointing new governors when Stanley Fischer, Lael Brainard, Daniel K. Tarullo, and Jerome H. Powell’s terms end. But if he takes this route, the market will still police the Fed’s actions. If continued low growth and low inflation do not justify rapid interest-rate increases, a hawkish Fed that raises rates anyway will face harsh disciplining by the market – and, by extension, so will Trump.

Moreover, premature and excessive hawkishness would strengthen the US dollar and sharply increase the US trade deficit, undermining Trump’s stated goal of creating jobs and boosting incomes for his blue-collar, working-class electoral base. If Trump cares about his base – or if he at least wants to avoid a political backlash from it – he should appoint dovish Fed governors who will favor easy-money policies that weaken the dollar. Ironically, President Barack Obama’s appointees, such as Brainard and Tarullo, are actually ideal for Trump’s agenda.

If Trump does choose a more hawkish monetary-policy approach, it will have an ambiguous impact on the dollar, owing to his other proposals’ downstream effects. Looser fiscal policy and tighter monetary policy should, as in former President Ronald Reagan’s first term, strengthen the dollar; but if Trump pushes the US toward protectionism, he will generate economic and geopolitical tail risks that would weaken the dollar and increase US country risk.

Similarly, Trump’s fiscal policies would also weaken the dollar over time – after an initial significant appreciation – as the substantially higher deficit spending would be financed either with easy money or bond issues that increase US sovereign risk. The net impact of all these factors on the dollar will all depend on how loose fiscal policy becomes, and on how tight monetary policy becomes.
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Trump’s proposed policy mix would also have an ambiguous – and modest – impact on growth, if he appoints hawks to the Fed. Looser fiscal policy would help short-term economic growth; but tighter monetary policy would undercut those gains. Similarly, if Trump really does want to redistribute some income from capital to labor, and from corporate profits to wages (admittedly a big “if”), his policies could boost consumption; but his populist, protectionist policies would undermine business confidence, and thus capital expenditures, while reducing consumers’ purchasing power through higher inflation.

Equity markets will undoubtedly favor Trump’s proposals to loosen fiscal policy, deregulate business and finance, and cut taxes. But investors will be on the lookout for protectionism, Wall Street- and immigrant-bashing, and overly aggressive monetary hawkishness. Only time – and the market – will tell if Trump has struck the right balance. 

Monday, November 14, 2016

What Trump will do once in the White House


Now that Donald Trump has unexpectedly won the US presidency, it is an open question whether he will govern in accordance with his campaign’s radical populism, or adopt a pragmatic, centrist approach.

If Trump governs in accordance with the campaign that got him elected, we can expect market scares in the United States and around the world, as well as potentially significant economic damage. But there is good reason to expect that he will govern very differently.

A radical populist Trump would scrap the Trans-Pacific Partnership (TPP), repeal the North American Free Trade Agreement (NAFTA), and impose high tariffs on Chinese imports. He would also build his promised US-Mexico border wall; deport millions of undocumented workers; restrict H1B visas for the skilled workers needed in the tech sector; and fully repeal the Affordable Care Act (Obamacare), which would leave millions of people without health insurance.

Overall, a radical Trump would significantly increase the US budget deficit. He would sharply reduce income taxes on corporations and wealthy individuals. And while he would broaden the tax base, increase the carried-interest tax, and encourage companies to repatriate foreign profits, his plan would not be revenue-neutral. He would increase military and public-sector spending in areas such as infrastructure, and his tax cuts for the rich would reduce government revenue by $9 trillion over a decade.


A radical Trump would also drastically change the current monetary-policy approach – first by replacing US Federal Reserve Chair Janet Yellen with a monetarist hawk, and then by filling current and upcoming Fed Board vacancies with more of the same. Moreover, he would repeal what he could of the 2010 Dodd-Frank financial reforms; gut the Consumer Financial Protection Bureau; cut alternative-energy subsidies and environmental regulations; and slash any other regulations that supposedly hurt big business.

Finally, a radical Trump’s foreign policy would destabilize America’s alliances and escalate tensions with rivals. His protectionist stance could incite a global trade war, and his insistence that allies pay for their own defense could lead to dangerous nuclear proliferation, while diminishing American leadership on the world stage.

But it is actually more likely that Trump will pursue pragmatic, centrist policies. For starters, Trump is a businessman who relishes the “art of the deal,” so he is by definition more of a pragmatist than a blinkered ideologue. His choice to run as a populist was tactical, and does not necessarily reflect deep-seated beliefs.

Indeed, Trump is a wealthy real-estate mogul who has lived his entire life among other rich businessmen. He is a savvy marketer who tapped into the political zeitgeist by pandering to working-class Republicans and “Reagan Democrats,” some of whom may have supported Vermont Senator Bernie Sanders in the Democratic primary. This allowed him to stand out in a crowded field of traditional pro-business, pro-Wall Street, and pro-globalization politicians.

Once in office, Trump will throw symbolic red meat to his supporters while reverting to the traditional supply-side, trickle-down economic policies that Republicans have favored for decades. Trump’s vice-presidential choice, Mike Pence, is an establishment GOP politician, and his campaign’s economic advisers were wealthy businessmen, financiers, real-estate developers, and supply-side economists. What’s more, he is reportedly already considering mainstream Republicans for his cabinet, including former Speaker of the House Newt Gingrich, Tennessee Senator Bob Corker, Alabama Senator Jess Sessions, and former Goldman Sachs executive Steven Mnuchin (who also advised his campaign).

The traditional Republicans and business leaders Trump will likely appoint will then shape his policies. The executive branch adheres to a decision-making process whereby relevant departments and agencies determine the risks and rewards of given scenarios, and then furnish the president with a limited menu of policy options from which to choose. And, given Trump’s inexperience, he will be all the more dependent on his advisers, just as former Presidents Ronald Reagan and George W. Bush were.

Trump will also be pushed more to the center by Congress, with which he will have to work to pass any legislation. House Speaker Paul Ryan and the Republican leadership in the Senate have more mainstream GOP views than Trump on trade, migration, and budget deficits. Meanwhile, the Democratic minority in the Senate will be able to filibuster any radical reforms that Trump proposes, especially if they touch the third rail of American politics: Social Security and Medicare.

Trump will also be checked by the American political system’s separation of powers, relatively independent government agencies such as the Fed, and a free and vibrant press.

But the market itself will be Trump’s biggest constraint. If he tries to pursue radical populist policies, the response will be swift and punishing: stocks will plummet, the dollar will fall, investors will flee to US Treasury bonds, gold prices will spike, and so forth. If, however, Trump blends more benign populist policies with mainstream pro-business ones, he will not face a market fallout. Now that he has won the election, there is little reason for him to choose populism over safety.

The effects of a pragmatic Trump presidency would be far more limited than in the radical scenario. First, he would still ditch the TPP; but so would Hillary Clinton. He claimed that he would repeal NAFTA, but he will more likely try to tweak it as a nod to American blue-collar workers. And even if a pragmatic Trump wanted to limit imports from China, his options would be constrained by a recent World Trade Organization ruling against “targeted dumping” tariffs on Chinese goods. Outsider candidates often bash China during their election campaigns, but quickly realize once in office that cooperation is in their own interest.

Trump probably will build his wall on the Mexican border, even though fewer new immigrants are arriving than in the past. But he will likely crack down only on undocumented immigrants who commit violent crimes, rather than trying to deport 5-10 million people. Meanwhile, he may still limit visas for high-skill workers, which would deplete some of the tech sector’s dynamism.
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A pragmatic Trump would still generate fiscal deficits, though smaller than in the radical scenario. If he follows the Congressional Republicans’ proposed tax plan, for example, revenue would be reduced only by $2 trillion over a decade.

To be sure, the policy mix under a pragmatic Trump administration would be ideologically inconsistent and moderately bad for growth. But it would be far more acceptable to investors – and the world – than the radical agenda he promised his voters.