Monday, November 13, 2017

Dr Roubini talks about financial risks

BI: They will come back provided there won’t be a similar crash as in 2008. If you succeeded to forecast the biggest crash in the global economy since the Great Depression of the 1920's, I have to ask you this particular question: does the world faces the similar fate right now? Do you notice any symptoms of the upcoming crisis?

Roubini: I don’t see similar threats for next one-and-a-half to two years. But in a long-term, there will be some kind of crisis, that’s certain. But whether it’s going to be in the US, China or Japan, we don’t know. Will its reach be global or local? We don’t know it either. But one has to remember that a crisis is not something unpredictable, like an earthquake. All crises build up - gradually, step by step. We keep climbing, higher and higher until we reach the final point. And that – Bam! We have a crash.

BI: So, right now, are we in the middle of this road toward the peak? Or do we just start climbing?   

Roubini: There are certain spots in the US over-leveraged enterprise sector that can cause trouble. The non-bank financial sector or rising government debt is also worrying, but for now, I don’t see the crash approaching. But the situation needs careful monitoring. The debt has to be spent on investment, not consumption – this is the only way to avoid another financial crisis.

BI: Are you telling me that we’ve learned something from 2008 experience?  

Roubini: There is a very distinctive change in a banking sector, both in the US and Europe. Earlier, we had to face high leverage, elevated risk or lack of liquidity. Since then, a lot of solutions have been launched to make the banking sector more stable. The improvement is obvious. However, there are still some banks, especially on fringes of the Eurozone, that need their balance sheets being put into order, especially due to bad loans. We need consolidation and more efficient management.