Working Papers

The Merchants of Doom

Juedische Allgemeine, Germany’s leading Jewish newspaper, recently asked Oliver Hartwich and I to write a profile of Nouriel Roubini as a counter to the numerous puff pieces in the Anglo-American press.  The German language version has yet to appear online, but there is an English language version in today’s Age:

For years, he argued that the US current account deficit would lead to a US dollar crisis and higher interest rates, pushing the US economy into recession. But that was not how the financial crisis unfolded.

One of Professor Roubini’s few specific predictions was that the US would experience zero GDP growth in the fourth quarter of 2006. This was far off the mark: the actual result was 3 per cent. After this embarrassment, he backed away from his recession prediction, writing in January 2007 that ‘it is not clear whether the bust of the housing bubble in the US will lead to a soft landing as the consensus view goes or a hard landing that could take the form of a growth recession or, less likely now, an outright recession’. The professor was hedging his bets in early 2007, clearly uncertain about the direction for the US economy.

The Age also runs a self-refuting profile of Steve Keen headed ‘This Keen professor overlooked by MSM [mainstream media].’  If only!

While on the subject of Keen, Christopher Joye has prepared a handy route map for Keen’s house price forecast death march from Canberra to Mt. Kosciusko.


posted on 10 September 2009 by skirchner in Economics, Financial Markets, House Prices

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Roubini may be crap at forecasting quarterly GDP numbers, but I wonder if there are some (perhaps generous) parallels to draw with the Platinum funds management guys. Kerr Neilson had been concerned about US household debt for some time and was short western financials as a result. This strategy paid off. Maybe a fluke, because plenty of their other strategies haven’t paid off. But to the extent it wasn’t, their concern over rising US consumer debt was similar to Roubini’s. Mind you, Keen has the same debt aversion and I guess the Australian experience has shown him that rising nominal debt per se does not spell disaster if your financial system stays intact.

Posted by .(JavaScript must be enabled to view this email address)  on  09/10  at  01:24 PM

I don’t know enough about Neilson’s methodology to say, but the difference with Roubini is that he at least had one.  With Nouriel, there is no discernable method to the madness.  The issue is not really about whether people were right or wrong, but whether their opinions are more than just that.

Posted by skirchner  on  09/10  at  01:47 PM

The US Recession that Isn’t—30/4/2008.

The US is still in recession 18 months later.

There are lots of these posts from the 2006-2007 period, claiming no problem with the US economy, no bubble in US housing, in fact, no bubbles at all!  Shall I find them all and link to them here?

Before you go ridiculing Keen, Roubini et al, how about admitting your own forecasting errors?

Posted by .(JavaScript must be enabled to view this email address)  on  09/10  at  06:57 PM

I never claimed to have forecast the crisis or recession.  I have always maintained that such events are not forecastable.

Posted by skirchner  on  09/11  at  08:05 AM

I have to agree with David here.

There were serious problems in the US economy starting in 2006 and intensifying all the way through to late last year. You didn’t raise any of them with your readers.

But we did get lashings of posts along the lines of ‘Roubini is a moron’, ‘Situation normal’, and ‘There ain’t no bubble’.

You may be right about Roubini, and admittedly a lot of professionals didn’t see what was coming. But you yourself have some work to do on your own methodology.

Posted by .(JavaScript must be enabled to view this email address)  on  09/11  at  10:24 PM

I agree.

Roubini has been given a free pass by the MSM despite his poor forecasting of the dollar and interest rates.  He described the housing crisis as it was happening but, along with his former colleague Brad Setser, was obsessed with the “unsustainability” of the US trade deficit - which is what generated his dollar/interest rate calls.

Posted by .(JavaScript must be enabled to view this email address)  on  09/15  at  03:00 PM

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