Batten down the hatches. Hold off on any serious splurges. And if you've got a steady job, cling to it closely. The devastation predicted for the global economy in 2013 has already begun, says "Dr. Doom" economist Nouriel Roubini.
Nouriel knows from bad times. The New York University business professor was one of the very few who accurately forecast the housing collapse and credit crunch that sparked the financial crisis in 2008. That prescience earned him a rank of #4 on Foreign Policy magazine's list of Top 100 Global Thinkers. And as bad as 2008 turned out to be, Roubini says 2013 is shaping up to be far worse and the wheels are already in motion.
"(The) 2013 perfect storm scenario I wrote on months ago is unfolding," Roubini said on Twitter on Monday.
"If perfect storm occurs difference btw 2008 & now is:then we had all the policy bullets;now we running out of rabbits to pull out of the hat."
This time around, he says, it's not a matter of bad mortgages in Nevada and reckless gambling on Wall Street. It's global. Emerging markets and developed ones. And the problems stretch from protests on the streets of Athens to sabre-rattling in Tehran.
Combined together, it spells uncertainty and risk, the two things that the markets hate most. The problem is that when the investors get skittish, the banks get scared, cash stops flowing, businesses scale down, and the death spiral begins.
Now, of course, Roubini didn't earn the title "Dr. Doom" by being an optimist. However, he's not just being a bear, he's backing his predictions up with some very hard-to-refute facts. These are the storm clouds gathering:
- The economies of China and India are slowing down. Fast. China, in particular, looks like it's in for a hard landing. The rest of the BRICs (Brazil, Russia, Mexico and Turkey) are not far behind. Given how much resources and commodities those countries import, particularly from Western Canada, any downtown in demand threatens huge repercussions.
- The Euro-zone is a slow-motion train wreck. Greece, Portugal, Cyprus and Ireland will have to restructure their debt this year. Spain and Italy may very well be next. The Eurozone won't break up this year, but could very well find itself on the brink by the end of 2013. Regardless, the risk and uncertainty that will consume Europe will spread through the global equity markets. Every time a major European economy requires a bail-out, it causes a correction in Eurozone markets, which in turn, impacts North America. Every time. And Roubini sees nothing but bailouts in the months ahead.
- Tensions in the Middle East are steadily escalating. Negotiations between Tehran and Washington have failed, and Obama's decision last week to send a major troop carrier into the Strait of Hormuz, within 50 kilometers of Iran, suggest moods are darkening. There is very little chance of the U.S. launching an attack before the election in November, but after that, it is anyone's guess. What isn't in doubt, however, is what the threat of conflict in the world's richest oil region will do for the price of crude. Or what happens to the global economy when oil prices soar.
- Last, but by no means least, is the lack of tools now at policy maker's disposal. In 2008, economic regulators employed a series of measures to rescue the global economy: Bond buying programs, lowering interest rates and pouring billions into a variety of stimulus programs. Central bankers now have few tools left. Neither Europe, the BRICs nor the U.S. are in any position to deficit spend, certainly not to the extent required to make a difference. There will be no more billion-dollar bailouts of the banks. Not when financial institutions like Barclays have just had to acknowledge that its CEO made $26.6-million last year while his bank falsified reports and manipulated interest rates. In the shadows of Occupy Wall Street and the increasing economic hardships in Europe and U.S., there is no chance whatsoever of any banker getting another billion-dollar rescue package.
So there it is. Four iron-clad reasons why the death spiral predicted for next year's global economy has already begun.
Consider yourself warned.