Wednesday, November 22, 2017

Bitcoin prices could collapse from potentially new future government regulations

I would separate the blockchain from the Bitcoin. Blockchain creates an enormous chance to increase productivity in many companies and I think the technology to be something very good. But the bitcoin and other cryptocurrencies – this is something entirely different. In my opinion, there is a gigantic speculative bubble related to the bitcoin.

Because this is neither a serious method of payment nor a good way to store capital. The bitcoin feeds on itself. There are no fundamental reasons for its price to reach such levels. What’s more – it is also used by criminals, for their shady business. I think that more and more countries will start to make cryptocurrency exchanges illegal like China did. New regulations will be adopted. So, this will find its end.  


via businessinsider

Monday, November 20, 2017

Bond Yields and Stock Market risks

"The global economy keeps growing, the inflation rate is still low, and central banks slowly depart from their unconventional, extra-easy monetary policy. Investors buy risk and their attitude toward the risk is optimistic. 

So, right now I don’t see any major threats. But if there is a fast increase in the bond yields, maybe we will see some major correction on the stock market. But I don’t quite believe it. Because of fundamental reasons. Globally, there are a lot of savings, but not much investment spending. 

The markets are also helped by the already-mentioned super-easy policy of the central banks that kept buying bonds and cut bond yields to below zero level. Of course, that does not mean that the banks can sleep peacefully. They need to normalize their actions in a prudent way, in order to adjust to the market expectations."


via www.businessinsider.com/qa-with-nouriel-roubini-bitcoin-is-a-gigantic-speculative-bubble-that-will-end-2017-11

Thursday, November 16, 2017

Countries and Governments should invest in People also

BI: Hard Brexit?

Roubini: At the beginning, the Brexit was to lead to the EU disintegrating. The same was thought after Donald Trump became the US President. In my opinion, the contrary happened. Because of the Brexit, you finally started to talk about joint actions against terrorism; such issues as joint defense, additional spending on infrastructure have emerged. Also, I can’t see the domino effect – the worries that other countries will follow the UK example.


BI: And aren’t you afraid of the rising protectionism? Look at Donald Trump’s words about the US leaving the NAFTA, freeze on the TTIP talks, accusing China of currency manipulations?   

Roubini: These are truly serious threats. Some people see the free trade as a reason of unequal distribution of goods. In other words, some companies lose their income, some people lose their jobs, and protectionism is seen as a good solution to these problems. So, the US moves toward the increased protectionism, but we don’t know what shape it will take – hard or soft. The issue is still open.



BI: Do you think it’s a right way?

Roubini: No, I don’t. At the end of the day, protectionism always leads to higher prices for goods in the particular country, hits a consumer and does little to protect jobs or companies. 

In my opinion, in the future new technologies rather than free trade or migration will be a much more disruptive factor causing chaos in the labor market. I support free trade, but it should be beneficial for everybody, the whole society. If there are people who lost their jobs due to lowering of the trade barriers, they should get appropriate support and help; they should change the sector, implement new technologies. In other words, we should invest in people. You can’t just give them a job for some six months and then forget about them. This way, they will feel abandoned, neglected, rejected by globalization.



BI: Now you sound like the International Monetary Fund’s representatives. This year the organization sent a very clear message – it’s necessary to fight income inequalities because they destroy our potential and threaten the economic growth.

Roubini: Because that’s true. It’s high time to state it clearly and loudly – over last years the role of trade unions decreased, the companies went through all kinds of restructuring. Our world has changed. But this is a dangerous road. We have to invest in the social capital, in education. We have to give people strength and the feeling they are able to change something. There are countries without natural resources, like Japan, Singapore, Hong Kong. Why have they succeeded? Because they have invested in their people. This is the key to success. It’s not only about roads, infrastructure, and physical assets. No. First of all, one has to invest in people.

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.


via www.businessinsider.com/qa-with-nouriel-roubini-bitcoin-is-a-gigantic-speculative-bubble-that-will-end-2017-11

Thursday, October 12, 2017

Likely economic scenarios for the next few years ahead

"For the past few years, the global economy has been oscillating between periods of acceleration (when growth is positive and strengthening) and periods of deceleration (when growth is positive but weakening). After more than a year of acceleration, is the world heading towards another slowdown, or will the recovery persist?

The current upswing in growth and equity markets has been going strong since the summer of 2016. Despite a brief hiccup after the Brexit vote, the acceleration endured not only Donald Trump’s election as US president but the heightening policy uncertainty and geopolitical chaos that he has generated. In response to this apparent resilience, the International Monetary Fund, which in recent years had characterised global growth as the “new mediocre”, upgraded its World Economic Outlook in July.

Will the recent growth spurt continue over the next few years? Or is the world experiencing a temporary cyclical upswing that will soon be subdued by new tail risks, such as those that have triggered other slowdowns in recent years? It is enough to recall the summer of 2015 and early 2016, when investors’ fears of a Chinese hard landing, an excessively fast exit from zero policy rates by the US Federal Reserve, a stall in US GDP growth and low oil prices conspired to undercut growth.

One can envision three possible scenarios for the global economy in the next three years or so. In the bullish scenario, the world’s four largest, systemically important economies – China, the eurozone, Japan and the US – implement structural reforms that increase potential growth and address financial vulnerabilities. By ensuring that the cyclical upswing is associated with stronger potential and actual growth, such efforts would produce robust GDP growth, low but moderately rising inflation and relative financial stability for many more years. US and global equity markets would reach new heights, justified by stronger fundamentals.

In the bearish scenario, the opposite happens: the world’s major economies fail to implement structural reforms that raise potential growth. Rather than using the national congress of the Chinese Communist party this month as a catalyst for reform, China kicks the can down the road, continuing on a path of excessive leverage and overcapacity. The eurozone fails to achieve greater integration, while political constraints limit national policymakers’ ability to implement growth-enhancing structural reforms. And Japan remains stuck on its low-growth trajectory, as supply-side reforms and trade liberalisation – the third “arrow” of Shinzo Abe’s economic strategy – fizzle out.

As for the US, the Trump administration, in this scenario, continues to pursue a policy approach, including a tax cut that overwhelmingly favours the rich, trade protectionism and migration restrictions, which may well reduce potential growth. Excessive fiscal stimulus leads to runaway deficits and debt, which results in higher interest rates and a stronger dollar, further weakening growth. Trigger-happy Trump could even end up in a military conflict with North Korea, and, later Iran, diminishing US economic prospects further.

In this scenario, the lack of reform in major economies will leave the cyclical upswing constrained by low trend growth. If potential growth remains low, easy monetary and credit policies could eventually lead to goods and/or asset inflation, eventually causing an economic slowdown – and possibly an outright recession and financial crisis – when asset bubbles burst or inflation rises.

The third and in my view most likely scenario lies somewhere between the first two. The cyclical upswing in growth and equity markets continues for a while, driven by the remaining tailwinds. Yet, while major economies pursue some structural reforms to improve potential growth, the pace of change is much slower, and the scope more modest, than is needed to maximise potential.

In China, this muddle-through scenario means doing just enough to avoid a hard landing, but not enough to achieve a truly soft one; with financial vulnerabilities left unaddressed, distress becomes all but inevitable over time. In the eurozone, this scenario would entail only nominal progress towards greater integration, with Germany’s continued rejection of true risk-sharing or fiscal union weakening incentives for struggling member countries to undertake tough reforms. In Japan, an increasingly ineffective Abe administration would implement minimal reforms, leaving potential growth stuck below 1%.

In the US, Trump’s presidency would remain volatile and ineffective, with a growing number of Americans realising that, despite his populist pretence, Trump is merely a plutocrat protecting the interests of the rich. Inequality rises, the middle classes stagnate, wages barely grow and consumption and growth remain anaemic at barely close to 2%.

But the risks of muddling through extend far beyond mediocre economic performance. This scenario represents not a stable equilibrium, but an unstable disequilibrium, vulnerable to economic, financial and geopolitical shocks. When such shocks eventually emerge, the economy will be tipped into a slowdown or, if the shock is large enough, even recession and financial crisis.

In other words, if the world does simply muddle through, as seems likely, it could, within three or four years, face a more bearish outlook. The lesson is clear: either political leaders and policymakers demonstrate the leadership needed to secure a better medium-term outlook, or downside risks will materialise before long – and do serious damage to the global economy."

via guardian

Thursday, September 7, 2017

Tuesday, August 8, 2017

Restricting Immigration to the US could hurt Economic Growth in the USA


Now that US President Donald Trump has been in office for six months, we can more confidently assess the prospects for the US economy and economic policy making under his administration. And, like Trump’s presidency more generally, paradoxes abound.

The main puzzle is the disconnect between the performance of financial markets and the real. While stock markets continue to reach new highs, the US economy grew at an average rate of just 2% in the first half of 2017 – slower growth than under President Barack Obama – and is not expected to perform much better for the rest of the year.

Stock-market investors continue to hold out hope that Trump can push through policies to stimulate growth and increase corporate profits. Moreover, sluggish wage growth implies that inflation is not reaching the US Federal Reserve’s target rate, which means that the Fed will have to normalize interest rates more slowly than expected.

Lower long-term interest rates and a weaker dollar are good news for US stock markets, and Trump’s pro-business agenda is still good for individual stocks in principle, even if the air has been let out of the so-called Trump reflation trade. And there is now less reason to worry that a massive fiscal-stimulus program will push up the dollar and force the Fed to raise rates. In view of the Trump administration’s political ineffectiveness, it is safe to assume that if there is any stimulus at all, it will be smaller than expected.

The administration’s inability to execute on the economic-policy front is unlikely to change. Congressional Republicans’ attempts to replace the Affordable Care Act (Obamacare) have failed, not least because moderate Republicans refused to vote for a bill that would deprive some 20 million Americans of their health insurance.

The Trump administration is now moving on to tax reform, which will be just as hard, if not harder, to enact. Earlier tax-reform proposals had anticipated savings from the repeal of Obamacare, and from a proposed “border adjustment tax” that has since been abandoned.

That leaves congressional Republicans with little room for maneuver. Because the US Senate’s budget-reconciliation rules require all tax cuts to be revenue-neutral after ten years, Republicans will either have to cut tax rates by far less than they had originally intended, or settle for temporary and limited tax cuts that aren’t paid for.

To benefit American workers and spur economic growth, tax reforms need to increase the burden on the rich, and provide relief to workers and the middle class. But Trump’s proposals would do the opposite: depending on which plan you look at, 80-90% of the benefits would go to the top 10% of the income distribution.

More to the point, US corporations aren’t hoarding trillions of dollars in cash and refusing to make capital investments because the tax rate is too high, as Trump and congressional Republicans claim. Rather, firms are less inclined to invest because slow wage growth is depressing consumption, and thus overall economic growth.

Beyond tax reform, Trump’s plan to stimulate short-term growth through $1 trillion in infrastructure spending is still not on the horizon. And, instead of direct government investment of that amount, the administration wants to provide modest tax incentives for the private sector to spearhead various projects. Unfortunately, it will take more than tax breaks to bring large infrastructure projects from start to finish, and “shovel-ready” projects are few and far between.

On trade, there is good news and bad news. The good news is that the administration has not pursued radically protectionist policies, such as branding countries as currency manipulators, introducing across-the-board tariffs, or pushing for the border adjustment tax.

The bad news is that Trump is sticking to his “buy American, hire American” credo, and his protectionist gestures will hurt growth more than they save jobs. He has already abandoned the Trans-Pacific Partnership and negotiations for the Transatlantic Trade and Investment Partnership with the European Union. He is renegotiating the North American Free Trade Agreement, and he may try to renegotiate other free-trade agreements, such as the bilateral deal with South Korea. And he could still start a trade war with China by introducing tariffs on steel and other products – especially now that China has been uncooperative in responding to North Korea’s escalating nuclear threat.

Trump could also limit the US’s growth potential by restricting immigration. In addition to barring visitors from six predominantly Muslim countries, the administration is intent on restricting migration for high-skill workers, and is ramping up deportations of undocumented immigrants. This, along with the much-ballyhooed border wall, will cut future labor supply, and thus economic growth, especially as the American population continues to age and drop out of the labor force.

Lastly, Trump’s deregulation agenda will not boost economic growth, and may actually weaken it over time. If financial regulations are loosened too much, the result could be another asset and credit bubble, and even another financial crisis and recession.

Meanwhile, Trump’s decision to withdraw from the Paris climate agreement, combined with a rollback of environmental regulations, will lead to ecological degradation and slower growth in green-economy industries such as solar power. And weaker labor protections will further reduce workers’ bargaining power, thus holding down wage growth and overall consumption.

It is little wonder that actual and potential growth is stuck at around 2%. Yes, inflation is low, and corporate profits and stock markets are soaring. But the gap between Wall Street and Main Street is widening. High market valuations that are fueled by liquidity and irrational exuberance do not reflect fundamental economic realities. An eventual market correction is inevitable. The only question is whom Trump will blame when it happens.