The Mayan civilization predicted time would end in 2012, for Roubini, China will implode in 2013 or 2014  When Dante approaches the gates of hell in his Inferno, he sees a sign that reads “abandon all hope, ye who enter here.” The same sign should hang in places where economist Nouriel Roubini is scheduled to talk.  Living up to the reputation that won him the nickname Dr. Doom, Roubini described the somber state of affairs that will define 2012 in a Bloomberg Tradebook conference held in New York last Thursday. Roubini said current sources of uncertainty and volatility, including systemic risk in Europe, political gridlock in Washington, an unsustainable growth model in China, and the myth of decoupling will haunt the global economy in what he and his colleague Ian Bremmer of the Eurasia Group call a “G-Zero world.”  The most frightening of his predictions, though, is the coming implosion of China, which will have to wait until 2013 or 2014.  “Most problems facing the global economy are not temporary or random,” explained Roubini at the conference. The famous NYU economist listed several of the key economic trends that will make 2012 another rollercoaster ride, and not in a good way.  On the commodity front, Roubini noted “energy and food insecurity aren’t going to go away.” Secular trends such as global population growth and rising disposable incomes in the developing world will put pressure on supplies of raw materials, which, as the famous 19 century economist Thomas Malthus made so clear, grow at a very slow pace. There is a reason shares in companies like Caterpillar have performed so well over the last couple of years.  The Arab Spring, which has already toppled governments across the Middle East, has added fuel to the fire of mistrust between countries in the region, conspiring to keep the risk premium in oil alive and well, according to Roubini. “Oil prices are going to go higher,” he told the audience. If that is so, large energy companies like Exxon Mobil and Chevron could be poised to benefit.  These “sources of uncertainty” will extend the anemic recovery, if it can even be called a recovery, that so-called advanced economies are experiencing. “This has not been a typical recession, it was a balance sheet crisis caused by too much leverage,” said Roubini, adding “studies suggest it could take up to a decade to reduce debts and deficits.”  A powerful deleveraging cycle has taken hold as governments push for austerity, all but guaranteeing a recession in the Eurozone and keeping the recovery muted in the U.S. Roubini referenced the Keynesian argument that in the face of a retrenching private sector (falling aggregate demand), the government should pick up the slack to avoid recession. But after having put out the fire of an imploding global financial system, the public sector is also tightening its belt.  Weak leadership all around will help keep the status quo unchanged. In the U.S., political gridlock seems to have reached a point where neither major candidate, Barack Obama and Mitt Romney, will be able to control both houses of Congress. Added to the fact that 2012 is an election year and you got even more extended lethargy. “The voter remains in the center, but both parties are increasingly [becoming more radical],” explained Roubini.  Roubini, like his colleague Ian Bremmer of the Eurasia Group, stressed the concept of a G-Zero world, where no global hegemon can elicit strong support to get policy enacted. From a piece in Foreign Affairs by both thinkers:  This is not a G-20 world. Over the past several months, the expanded group of leading economies has gone from a would-be concert of nations to a cacophony of competing voices as the urgency of the financial crisis has waned and the diversity of political and economic values within the group has asserted itself.  Roubini decried those expecting the emerging and developing economies to fully decouple from the advanced world and warned that the European crisis will only get worse. Stock and flow problems, as too much debt is coupled with frozen liquidity, are being remedied by austerity, which will lead to a deepening of the current recession.  The only solution, Roubini believes, is for countries like Greece to leave the Eurozone and engage in a real depreciation, ala Argentina, to restore productivity, as I reported a few months ago. (Read Greece Should Default, Leave The Eurozone, And Reinstate The Drachma).
Roubini's predictions for 2012 are almost as scary as the Mayans: high commodity prices to keep food and energy uncertainty alive, political gridlock in the U.S., a failing Eurozone, and the coming implosion of China in '13 or '14.