Dr. Doom …
That’s what they call him. Dr. Doom. His real name is Nouriel Roubini and he’s the pessimistic economist who keeps warning us about our economic failures, and who now says we’ve got a long way to go before we dig ourselves out of the mess we’re in – but he didn’t say how it could be done.
In 2006 – four years ago – Professor Roubini was reminding us that our bad commercial real estate loans alone could send hundreds of local banks into the arms of the Federal Deposit Insurance Corporation. “A good third of the regional banks won’t make it,” he predicted. In turn, he said, these bailouts will add hundreds of billions of dollars to the already gargantuan federal debt, and someone, somewhere, is going to have to finance that debt, along with all the other debt that will be accumulated by consumers and corporations.
The U.S., Professor Roubini stated – if it could muddle through the crisis – will emerge from it a different nation, with a different position in the world. “This might be the beginning of the end of the American empire”, he warned.
When he said all this back in 2006, Professor Roubini was clairvoyant about conditions in 2010 …
1. An additional 4,000,000 foreclosures;
2. 30,000,000 Americans who would be relying on food stamps for survival;
3. The commercial real estate mortgage re-set defaults;
4. The more than double the number of U.S. Bankruptcies;
5. Prolonged unemployment – more than 30%, if all the unemployed are counted;
6. The despair of beaten down Main Street Americans;
7. … and a foundering government with no meaningful plan to create jobs.
He was addressing an audience of economists at the International Monetary Fund back in 2006, and he announced that a crash was brewing. He warned that in the coming months the U.S. would face a housing bust, an oil shock, sharply declining consumer confidence and a deep recession. He predicted that homeowners would default on mortgages, trillions of dollars of mortgage-backed securities would unravel worldwide, and that these developments would cripple or destroy hedge funds, investment banks and financial institutions such as Fannie Mae and Freddie Mac. Some of the experts among his listeners laughed at these seeming absurdities.
But subsequently, events have vindicated Professor Roubini. Subprime lenders began filing for bankruptcy, hedge funds began going under, the stock market plunged, there was declining employment, a deteriorating dollar, an ever-increasing evidence of a huge housing bust and a growing air of panic in financial markets as the credit crisis deepened. Just as he had forecast.
So, as one would expect, when Roubini returned to the IMF for a second talk and predicted a more serious crisis that would infect every sector of the financial system – no one was laughing.
[Ironically, by his own admission, Dr. Doom has “never put a penny into the stock market”.]