Nouriel Roubini: Obama's Foreclosure Plan Too Timid, More Stimulus Spending May Be Needed

[Better Believe It]

One on One with Nouriel Roubini, Economics Professor at NYU's Stern School of Business
October 28, 2008


SUSIE GHARIB: My first question: will President Obama's mortgage recovery plan slow down foreclosures and help the economy?

NOURIEL ROUBINI, PROF. OF ECONOMICS, NYU STERN SCHOOL OF BUSINESS: Reducing monthly payment is positive, but you need a reduction in the face value of the mortgages -- significant, 20, 30, 40 percent depending on the household. So in my view this plan is too timid. It's going in the right direction but it's going to take years until we have (INAUDIBLE) on millions of these household debt and it's going to be too little too late and therefore it seems that (INAUDIBLE) housing is going to be relatively weak.

GHARIB: Professor Roubini, when you look at President Obama's overall economic stimulus plan, will it work?

ROUBINI: The headline is $800 billion but only $200 billion that's going to be spent this year. The .... tax rebate in my view is not going to be spent. Last year we had a tax rebate only $0.30 on the dollar were spent. The rest of it was saved because people are so worried about jobs, about running down their credit and mortgage debt, they're not spending it. So the tax part of it in my view is a waste of money. And a lot of the infrastructure spending is not going to be ready to be spent right away. There are very few projects that are shovel ready. Many of them take years to implement. So my concern is that while the headline number looks big, the actual size of spending this year might be small compared to what is necessary to get us out of this very severe economic contraction.

GHARIB: One of the big selling points of the stimulus plan is that it's going to create millions of jobs. If that is the case, how soon do you see the unemployment rate dropping?

ROUBINI: No one is really expecting that the unemployment rate is going to start to shrink any time soon. It's going to keep on rising I believe to 9 percent easier, probably as high as 10 percent next year. All the stimulus plan can do is to slow down the rate at which job losses occurring, not to reverse it for the time being.

GHARIB: So are you saying that despite all these economic recovery plans that this recession could turn into a depression?

ROUBINI: It's a possibility. It's a low probability. If we do everything right on the (INAUDIBLE) on the fiscal on the bank and the debt problem we avoid a near depression like the Japanese (INAUDIBLE). If we make mistakes in the U.S. and other countries, many other countries are behind the curve in the policy response, I would not rule out there is an L-shaped Japanese kind of style near depression. That's a possibility.

Please read the complete interview at:

http://www.rgemonitor.com/roubini-monitor/255655/latest_roubini_interviews_on_charlie_rose_and_on_nbr

or at:

http://www.pbs.org/nbr/site/onair/gharib/081028_gharib/

[Metta]

1. Obama has put his courage in Republican/conservative Dems pockets.

shmuck. We all suffer.

[Better Believe It]

2. I'd like to see Roubini appointed to a high position in the Obama administration

I hope that at least President Obama is consulting with him. Regular one on ones would be helpful. Roubini won't sugar coat things and will give Obama the hard facts and good advice on what is needed to prevent a full-scale depression.

So far Roubini has been right on the money in his economic forecasts.

[katty]

3. invest in Roubini--he delivers the FACTS

[depakid]

17. The smart move would have been to hire those who saw this coming and warned about it

-and proposed (or opposed) various regulations and legislation.

Instead, Obama chose among the very people who not only got it wrong- repeatedly, but were in some cases instrumental in setting the financial system up to crash.

[Still Sensible]

4. His statement on the tax relief is disingenuous and wrong

If these tax cuts were being done the way Bush did tax cuts, he could well be right and we could expect the same result as the example he cited or worse. But these simply add something like $15 a paycheck (average) to workers... this tax relief will indeed be spent and just as soon as people start getting it because they are hurting and need all the help they can get.

If he wants to argue it is not enough tax relief to the poor and middle class he would probably be right. But to contend this money will not be spent is a joke.

The published studies also say that the additions to food stamps and the extended unemployment benefits will be among the most effective expenditures in the bill.

[Better Believe It]

5. He's absolutely right. The "tax cut" money should have been spent on public works.

Once again Roubini has been absolutely frank and honest with his opinion, hardly disingenuous (an old cliche). You're the only person I've heard calling him dishonest. Perhaps you just don't like his honesty and independence and the fact that he doesn't just echo whatever opinion is expressed by White House economic advisors, be they right or wrong.

If you're familiar with Roubini and had read his recent columns, you would know that he has been one of the strongest supporters of higher unemployment benefits and extensions and food stamps. He thinks that is a very important and good use of government funds during this crisis.

It's true that he has criticized the tax cut Republicans including those so-called "Republican moderates" who push tax cuts at the expense of money that should be used for infrastructure and green jobs.

The 200 billion in tax cuts could have been used to finance over 20,000 vital, useful and important public works projects employing nearly 2 million people that are "shovel ready" and could be finished by the end of 2010. That's a much more stimulative and productive use of 200 billion bucks. A lot more bang than you will see from the "tax cut".

Instead, that money has gone for puny tax cuts that will do little to help workng class people. According to most estimates the actual "tax cut" will amount to less than $10 a paycheck, but I guess that could qualify as "something like $15 a paycheck" to workers. What do you think we'll spend those big bucks on .... a new frig, perhaps a major appliance .... hey, maybe we can save it up and in a month take the family to a baseball game so long as we don't buy any beers, sodas or hotdogs! While everyone who has a brain will accept that "tax cut", lots of workers are joking about the small size of the cut.

Most of that "something like $8 bucks a week" will go into savings, paying the rent or mortgage, utility bills, gas or other basic living expenses. It ain't going to stimulate the economy! Roubini understands that along with all other credible economists who aren't on the payroll of Wall Street or the Republican party and their various reactionary think tanks and foundations.

So screw the Republican inspired tax cuts! I'd rather have that money going for important public works projects that can put a few million people to work at good paying useful jobs. If you're out of work you ain't getting any tax cut!

[Still Sensible]

10. I don't disagree that the money would have been

better spent on public works. What I'm saying is he's not telling the truth when he says this tax relief will be saved and not spent. That is the kind of bullshit misdirection that we've spent 8 years railing the other side for. The people that get that 35-45 a month more will by and large spend every penny on groceries and other things they need.

[Kat45]

14. The tax cut wll do nothing for those who have lost their jobs

And those who will lose their jobs. This is a large group of people.

[asphalt.jungle]

8. exactly

psychologically when you get a lump sum of money as a check in the mail your most responsible instinct is to want to save it. an additional $13 a week tacked onto your paycheck won't be saved. it will get direct deposited and get mixed in with all the other expenses you have to cover with your paycheck. it's like a small raise. it is disingenuous to compare the two.

[Better Believe It]

9. You got that right! "it's like a small raise" A very small raise 25 cents an hour .... whoopee!

It might be $13 a week if you put in 20 hours overtime or if you work part-time is might be 4 bucks a week. That will not "jolt" the economy .... hell it's not enough to even register on the joltameter!

If this so-called "tax cut" didn't take away from spending 200 billion dollars more to "jolt" the economy, it might be OK. But the "deal" struck with three "moderate" Republicans was substituting tax cuts for public works jobs. You missed that?

But, please don't try and portray the tax cut as some huge boost and stimulus to the economy. That it ain't!

[asphalt.jungle]

11. What is it?

You mock the size of it and say it won't register. Well if it's so small that most Americans don't even perceive it as a tax rebate then that's 13 extra dollars they will spend with the rest of their paycheck. So how is that not stimulative? If someone decides to buy a little bit more food because of that $13, it's stimulative. Your post (the one I'm replying to here) isn't some extension of Roubini's argument. He's saying that like the lump sum Bush stimulus this extra $13 will be saved and not spent. But you're arguing that $13 is nothing, since when do people save their tiny raises? If Roubini felt that people were going to spend that extra $13 he wouldn't compare it to the bush stimulus. So I understand why he's making that argument. I feel he's wrong, but at least I know where it's coming from.

Like my subject says, what is it? Do you believe it's nothing and even if it's spent it doesn't matter? Or do you believe people will save it? It can't be nothing and savable at the same time. And if it's spent then it can't be anything but stimulative.

[northernlights]

6. yes there needs to be more stimulus AND..

I'm SURE there is more to come.

Think about it.

Most economists have agreed we need massive stimulus.
Many economists think this package doesn't go far enough.

BUT NO ECONOMIST AGREES on exactly what needs to be done, or how.
And NONE can or will guarantee that their particular version or recommendations will work.

And Obama has said himself that he expects some parts won't work as expected and some will work better than expected, etc.

In the meantime, the pundits whine that this stimulus lacks a "theme" and is like throwing something at everything.

Well, I think that last was intentional. I suspect this is just the first round of stimulus. That they'll see what works, what doesn't, and what would work better if tweaked.

And then for round two, they can double- or triple-down on what works, drop what doesn't work, and tweak what needs tweaking. And they'll have results from round one to justify it.

Makes FAR more sense than putting all your chips on one plan or another, and risk losing all.

This way, it's a little slower but far more certain recovery.

[Better Believe It]

7. I Agree And here's two clear stimulus plans that should be adopted ....SOON!

http://www.democraticunderground.com/discuss/duboard.php?az=show_topic&forum=132&topic_id=8201978

The cost? About 200 billion.

And will a bigger, more targeted stimulus plan along the lines of the above be passed by 60 Senators including two Republican Senators?

Never.

The Republicans (with the possible support of a few Democratic Senators) won't vote for another stimulus.

To pass another stimulus bill, Senator Reid will have to challenge any real attempt (not a mere threat) to filibuster and obstruct economic recovery.

In fact, the Democrats will have to change Senate rules to prevent any filibuster and require a simple up or down vote on new legislation.

Democrats can do that. It's a very simple Senate procedure which has been used before. It's the one threatened by Republican Senators in 2005.

I won't call it the "nuclear option". I prefer the term "giving power to the people" option. The people voted for a Democratic Congress and Democratic President because they wanted a real change.

Why should a minority party be allowed to violate the will of the people and obstruct the work of Congress when they lost the election?

[Thrill]

12. I like Obama's Approach. If people see that this stimulus is working

He won't have a problem getting another one.

[Fire1]

13. "a reduction in the face value of the mortgages." On Point!!! eom.

[Frank Booth]

15. So Roubini's in favor of re-inflating the price of housing? When it hasn't even hit a reasonable

bottom yet?

I bet Roubini's got a few houses stashed that he's trying to flip. Once he gets the mortgages reduced by 40% he'll score beaucoup bucks. Then he can buy that next Hummer he's been yearning for. Anything to make Krugman envious.

[anonymous171]

16. Gotta keep up with the Krugmans! nt