Nouriel Roubini Sees the Economy at a Tipping Point

By on March 12, 2012

Nouriel Roubini - Roubini Global EconomicsMaria Bartiromo interviewed Nouriel Roubini, chairman of Roubini Global Economics, to get his views on Greece’s official default and global economic trends.

Roubini said it was obvious they (Greece) were going to use the collective action clause to cram down the holdouts. Based on the definition of what triggers the CDS, it was a credit event. The amount of outstanding net CDS is only 3 billion euros. He doesn’t think there will be any systemic worry coming from that, “people are going to be able to pay,” Roubini added.

Roubini said, in some sense it is good news because last summer they were trying to avoid triggering the CDS’s. That was one of the reasons why the spreads on Italy and Spain widened because anyone who had bought protection said “hey, these things are worth nothing,” and now we recognize the CDS’s can actually protect you against a credit event. Last summer we were selling the cash bonds as a way of protecting us, but now the CDS’s are considered protection which is a good thing, Roubini stated.

Bartiromo asked Roubini about his opinion that the economy is at a tipping point in a sub-par and anemic recovery. Roubini said some of the data have improved and the tail-risk of Europe has been reduced, but the Eurozone periphery is in a recession and with austerity and a credit crunch it’s going to get worse. He worries about these countries becoming insolvent and political shocks from France.

Following are Roubini’s watch list of potential problems:

>> Eurozone recession and incoming Greek depression

>> Risks of Chinese hard landing and growth slowdown in Asia

>> Risks of rising oil prices triggered by war between Israel and Iran

>> U. S. data starting to look more mixed despite labor market improvement

>> Unrest in the entire Middle East (Tunisia, Egypt, Libya, Syria, Yemen, Kuwait, etc.)

Roubini elaborates on all his economic concerns, including his projection when Greece leaves the Eurozone, in the video below:

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