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Roubini Global Economics: Goodbye Great Recession. Hello bedlam.

In this conference call, Michael Moran, chief political analyst for Roubini Global Economics, discusses the deterioration in global security, unprecedented in the post Cold War era.

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GlobalPost: Good morning and welcome everyone, it’s Thursday, October 14. I’m David Case, editor of GlobalPost’s membership and research programs. We have a very special call for you this morning. I’d like to welcome Michael Moran, who’s the chief political analyst for Roubini Global Economics. Welcome, Michael.


Michael Moran: Thank you, I’m glad to be here.


GlobalPost: In case you’re not familiar with Roubini Global Economics, it’s a leading economic analysis and market strategy firm, headed by the renowned NYU economist Nouriel Roubini. As early as 2005, Mr. Roubini famously predicted the mortgage meltdown. The prediction first earned him scorn, and later accolades. He was now something of a global economic rock star, advising major corporations and governments and even making cameos in Hollywood films. Michael Moran has been with Roubini for two years. In addition to being chief geopolitical analyst, he is vice president and executive editor of the firm’s excellent Web site, most of which is only available to clients. Let me say, it’s a great site for investors, risk managers, and anyone else who needs concise, in depth economic and market analysis. Previously, Michael was executive editor of the Council on Foreign Relations Web site. He was a BBC correspondent and spent nearly a decade at MSNBC, where he was director of international news. He has been writing for GlobalPost since our founding, and we’re very pleased to have him on the call.


Before we begin, I have a couple of brief messages. First, we’d like you to know that GlobalPost regularly hosts calls like this one with our correspondents around the world. Calls are normally only available to GlobalPost members. If you enjoy the call, please consider joining. It costs less than $30 a year, money that helps us sustain our international reporting. Plus, you get access to innovative content that brings you closer to the news, such as conference calls and Web chats, and we even let our members suggest and vote on story ideas, which GlobalPost then reports. See the membership link on the nav bar of to join.


Second, I’d like to alert listeners to another service, GlobalPost research. GlobalPost research does studies and reports for private clients, using our worldwide network of experienced correspondents. If you need information out of Dakar or Sao Paulo or anywhere else for prospective investment, or if you need an analysis of the credit card market in China, for example, we can help. For more information, visit I should also mention there are links to the Web pages that I’ve just mentioned on the bottom of the emails that we sent you this morning.


Finally, we usually like to take questions from the audience during our membership calls. We have a sell-out crowd today, so we’re going to ask you to email the questions. If you’d like to ask a question, please email it to us at We’ll also open up some of the phone calls at the end of the all in case you happen to be driving or something like that, and we’ll dedicate the end of the half hour to questions.


So, now we’ll begin. Michael, in a recent GlobalPost article, you argue that the world is becoming dangerously volatile. In particular, you wrote, rarely since the end of the Cold War has so large a swath of the Asian continent been so unsettled. So what exactly is going on? After so many months of grim economic news, are we now facing a global security crisis?


Moran: Well, first of all, welcome to everybody on the call. I would probably not say global security crisis. I think what you’re seeing right now is the result of a world in transition. In the geostrategy, geopolitical side of things, you’re seeing echoes of the changing dynamics in the global pecking order economically. This is playing out, in particular, in places where there is more than one power rising, so the friction is not surprisingly greater. Across Asia, really—and I include all the way over to the Israeli-Iranian potential conflict in that analysis—you’re seeing relatively well-established disputes, things that go back to World War II and even well before suddenly become active again. This is particularly true, of course, with regard to the fringes of China, around the border of China, where on one end, the Indian and Chinese security establishments and the nationalisms that drive them are vying for influence in Nepal. China has re-established an old claim to Arunachal Pradesh, an old Hindu state in India. So that’s obviously, in a larger sense, that’s a big, big rivalry in Asia, involving the United States in various ways as well.


Then you’ve got, along the coast, the question of the two Koreas, where China has reasserted itself as essentially Papa Bear. Standing on the rostrum as the two candidates appeared in public for the first time was the Chinese foreign minister. And interestingly, they’ve picked a couple of fights over little islets, both in the east and south China seas in the past couple of months, inciting nationalism in Japan, creating uncertainty in places like Vietnam and South Korea and the Philippines, which has actually played very well into the hands of the United States. From an investment standpoint, of course, this kind of noise is not helpful, necessarily, particularly with the U.S.-China relationship right now. Currency and trade tensions are very high right now. China increasingly is the target of criticism from countries all over the planet, and that doesn’t just include the developed world, of course, but also the emerging markets. China’s artificially low currency is raising problems for competitiveness in places like Vietnam, Malaysia, Indonesia, etc. So this is all happening at a time when geoeconomics is coming to a head, and of course the U.S. elections just exacerbate it all.


GlobalPost: OK, Michael. On your Web site you keep a publicly available grid of global unrest, where you track some 65 conflicts. This quarter you’ve increased the risk level to 13 of the 65 and you’ve added eight new ones, for a total of 73 now. Can you tell us, aside from the ones that you just mentioned, which are the ones that are most economically significant new or deteriorating conflicts?


Moran: Well, it’s always a trick question. The intersection of geopolitics and economics obviously is a fuzzy question. There are no metrics for it that really have any reliability. So there’s a lot of instinct and theory behind how you do these things. But I will say the most economically significant ones that are deteriorating since last time are definitely Ireland and Portugal. Political stability in those two countries remains relatively calm; the two countries involved—they’re really on the brink of insolvency in Ireland, and in Portugal it’s really just waiting for the shoe to drop in Ireland before markets turn on Portugal. The bigger picture is that this is the soft underbelly of the Euro Zone in general and the EU at large. So this is really a large issue—it’s getting the attention it deserves, finally. Greece to some extent has managed thanks to a German-fueled, IMF-participated bailout, to stabilize its portfolio for the moment. But long term we see some real problems here. There’s bailout after bailout, and without Ireland and Portugal telling their creditors to take a pretty serious haircut, it’s hard to see how this goes forward without causing real ripples.


Beyond that, of course, Iran and Israel that is a potential conflict which has loomed over the world for many, many quarters—about four years, really, since it’s become a real possibility. The good news is I don’t think that any of the reports about its being imminent are true. I think that’s the kind of disinformation that you would expect both sides to be happy to put out. The bad side of this is that ultimately the way the Israeli government views the threat from Iran and its history of pulling things like this off fairly successfully, there’s a pretty good chance that they’ll do something at some point. The potential consequences from that are gigantic. Oil markets, prices spiking, could be a prolonged spike if the Iranians were to shut down the Shatt al-Arab or to attack Gulf oil platforms from GCC nations—all sorts of instability that could come out of this if they were to unleash Hezbollah or even encourage Hamas to get involved in a civil war with Israel. So this is a potentially gigantic thing.


The final one I’ll mention, and this is really an internal conflict: India has an insurgency that doesn’t get a lot of press in the West. These are Maoists, very similar to the Maoists that overthrew the Nepalese monarchy a couple of years ago and ended up in government for a while. India’s having a very difficult time in its northwestern provinces, in the West Bengal state in particular. The army has been ineffective and victimized by this group. The difference between this group and every other group in India is that they don’t seem to know is that India’s democracy is one big negotiation, whether it’s aboveboard or corrupted. You’re constantly negotiating in India for a place at the table. The Naxalites will not come to the table. The Indians have offered and offered. This is a real problem, and economically it’s a real problem, because this is a major coal-producing region and India is very coal-dependent. So that’s a big issue for India. It’s an economic good-news story—we actually see them overtaking China in growth for many years now—but they’re got some internal difficulties that don’t get enough press from our standpoint.


GLOBALPOST: Very good. We’ll return to Europe and the Middle East a little bit later, but first I’d like to follow up on China for the moment. We have a question from the audience that I think is on everyone’s mind these days. Lloyd Cata talks about China exerting its economic status into strategic global assertiveness. As an example, he cites China’s apparent willingness to use both economic and public pressure against the Japanese to project its new economic status. It’s a good question. In the past, many argued that the business of China was business, and now Beijing seems to be at odds with many countries, particularly Japan, Vietnam and the U.S. And it’s even, as you mentioned, rekindling these border tensions with India. You argue that these border conflicts—in your piece in GlobalPost, you argue that these conflicts aren’t necessarily Beijing’s fault but clearly there’s a trend here. What’s going on? Is this a taste of what a Chinese century might look like?


Michael Moran: Well, I guess I’m not saying so much that it’s not their fault—it’s very deliberate, this policy that they’re pursuing. The problem is that there’s a many-headed hydra that runs China. It’s a monolith, the Chinese Communist Party, from the outside. Internally, though, the PLA—the People’s Liberation Army—major state-run enterprises, various factions within the Communist Party, and then very strong regional governments all play a role in the control that China exerts over its own population. So what you see when you see a little flare-up like what happened recently between the Japanese and the Chinese, when a Chinese fishing boat allegedly rammed a couple of Japanese patrol boats—there was an arrest of the captain, and then a freeze in relations—is that China has a very difficult time backing down. The legitimacy of the Chinese Communist Party, in its own view, its legitimacy is that it has done a good turn to its population by lifting them out of poverty and raising China’s status in the world such that it’s respected and even feared. So for them to back down in any of these relatively minor island disputes, whether it’s with the south China sea in Taiwan or in the east China sea with Japan, is a very hard thing for them to swallow. So, inevitably, they do things like—for instance, in the Japanese case, China just suspended rare earth mineral sales to Japan. And China is the source of 99 percent of the world’s supply of rare earth minerals.


Now, there’s some who would argue this could be counterproductive, because Japan could react by setting up its own plants in Vietnam, which is the producer of about 1 percent of it, and could solve Japan’s problem. But the fact is, from China’s standpoint this also—and they have to know this—this also plays into the hands of the United States, which is desperate to show that it remains relevant, particularly on the Pacific Rim. And the flare-ups—between the sinking of the Korean warship in the Spring, and the kind of back and forth with Vietnam and with the Japanese—all of these things play into the hands of the United States, who are able to say, look, we have no territorial interests here, we just want the status quo to be calm and peaceful. We want to be able to navigate the seas for the sake of trade. And that’s an argument that gets a very sympathetic audience right now in the Pacific Rim.


GlobalPost: The good news out of East Asia these days is détentes between China and Taiwan, to a certain extent. They signed a trade agreement earlier this year. Still, reunification remains high on the agenda within the party. Of all these conflicts that you’ve mentioned, is there any chance—do you see any chance that any of these could break out into a shooting war, a hot war, in the foreseeable future?


Michael Moran: The two that seem most fraught, let’s put it that way, would be some kind of real miscalculation between Japan and China. The two are historic rivals. The Chinese have been raised to hate Japan and what it stands for because of what Japan did during World War II. There’s never been the healing process that took place in Europe over this issue. So that’s one place I think is particularly fraught.


The other one is the U.S. and China. The difficulties that stem from the possibility of, first of all, a currency war—which is arguably happening already—and then, if that mutated into a trade war, the jump to actual war isn’t too far. I mean, the tensions—what happens inevitably with the U.S. and China is that they immediately cut off relations between the two militaries. And in many ways, that’s the kind of safety valve, to have military to military talks where they can discuss the particulars of, for instance, planned maneuvers with other navies, or war games with the South Korean navy, so that the Chinese navy knows what’s going on there and can’t pretend to have been caught by surprise in some way, and then an incident comes out of that. Those are the dangers, I think, and the kind of hair trigger that a trade-slash-currency war could put both militaries on could be dangerous. I wouldn’t see a real war, a giant conflict, but the idea that it could result in shooting and some really bad relations, that can’t be ruled out.


GlobalPost: OK. Let’s expand on the question of a currency war. We have a question here from David Reidel. He asks, “Countries from Brazil to Thailand are using capital controls to manage the flow of funds into their currencies. What role does this play in global competition and unrest?”


Michael Moran: Actually, I think this is quite significant. Nouriel Roubini, my boss, just actually wrote a piece on this, which we delivered to clients and which he’ll inevitably repurpose as some kind of column soon. Basically, the sense that what we’re looking at is some kind of ganging up on China is an interesting situation. As I said, it’s not just China which is at fault here. In fact, what’s happening is that all the countries which typically run trade surpluses—I’m sorry, which run budget surpluses, but also trade surpluses—so that’s China, large emerging markets, export powers like Germany and Japan, have been stalling in the process of rebalancing their economies. Just about everybody at the economic level agrees that it’s unhealthy for one set of economies to be constantly fueling debt, fueling growth on borrowing—that’s the U.S., U.K., Anglo-Saxon model, you might say—and then to have the other half of the world, which is trade-centric, fueling their growth with trade to these countries, and essentially lending constantly. So what’s happening right now is the countries which need to rebalance their books, they’ve gotten a good kind of cross slap in the face by the global economic crisis, and it’s clear that but for the fact that we control our own currencies and have a pretty good economy, the United States might be very much like a super Greece, given the levels of debts we’re currently sustaining, and that’s even more true in the U.K. So what we’re looking at now is countries that need to figure out how to grow but at the same time cut spending, and that is, by definition, a dilemma. You’d want money to be flowing into your economy right now.


So one way to do that would be to get somebody to allow our currencies to depreciate against the Chinese currency, but it’s just not happening. And the Chinese, and also the Germans, are really dragging their feet in this regard, and it’s going to exacerbate the imbalances, which are going to extend the developing world’s recession by months, if not years. Hope that made some sense.


GlobalPost: Yes. I think we could devote an entire call to currency at this point. Let’s turn to Pakistan before we get back to Europe and the Middle East. A nuclear arms country that’s never been a model of stability, with floods devastating the heartland of Pakistan, with some 20 million-odd people affected, the government now looks extremely weak. Meanwhile, U.S.-Pakistani relations appear to be plunging to new depths. What can we expect out of Pakistan?


Michael Moran: Well, it’s interesting. You know, I just completed—we do these things at CFR called crisis guides, and I just completed the newest one, which is focusing on Pakistan. So I spent the last six months talking to the world’s experts on this, including Pakistanis themselves. The country is really, really in bad shape. And most of my work was done before floods covered a quarter of the country and destroyed so much infrastructure. My read on Pakistan right now, basically garnering these insights from these folks, is that the country’s military is almost being asked to step in, at this point. Recently you saw Musharraf, the former military leader of Pakistan, making very clear that he believes the military has a duty at some point to step in and take control because of what he describes as the venal, self-interested political parties there. And this is the pattern in Pakistani history. This happens, the cycle is back and forth every couple of years. The idea that they’ve broken that cycle I don’t think was particularly well subscribed to, but it’s a particularly bad period right now.


The one saving grace for the Pakistani government right now might be that there is an enormous amount of aid flowing in, and if they can functionally direct it to some of the right places, they might be able to calm some of the constituencies in that country that need calming, particularly the merchant class, the middle classes in the big cities, in the south, in Karachi, etc., which have been the basic support for the civilian governments.


With regard to the U.S., the situation is very bad. The U.S. is very close to giving up on the Pakistanis, since the ISI, the Pakistani intelligence services, are so clearly involved with at least the Haqqani brigades, which are a kind of renegade Afghan militia, but probably also elements of the Taliban—it’s hard to draw a line between the two. The U.S. is looking at this and saying, really, do we have an ally here at all, and if we don’t, does it make sense to send billions of dollars every year in military aid to this country, and see that aid directed at India, essentially. And that’s the real question for U.S.-Pakistani ties down the road. The U.S.-Indian relationship is so obviously more important on so many levels, but the Pakistanis essentially feel as though they have us somewhat over a barrel.


GlobalPost: And if Musharraf or the army stepped in, as sort of the white knight at this time of crisis, how would that affect U.S. relations?


Michael Moran: I think the U.S. would just—I mean, to some extent, they do have us over a barrel. As long as we are in Afghanistan, attempting to defeat the Taliban—and today you might have seen the Wall Street Journal story about us sanctioning peace talks, which is an interesting development—but I think that you cannot win in Afghanistan, or even stabilize Afghanistan, without Pakistan’s help. Musharraf might actually—or, well, not him, but the military might actually be more effective in doing that than they are now if they thought their actions wouldn’t justify, or essentially benefit, the civilian government, which they don’t like at all. So, this is a bit of a tail-chasing game. I don’t think it’s going to deeply improve relations, but if it happens, it would complicate things, but probably not improve them greatly. That would be my analysis of that.


GlobalPost: OK. I promised to turn back to the Middle East and to Europe, and I think we’d be remiss not to talk a little bit more about Iran. We’d be going a little bit over time, if that’s okay with you, Michael?  


Michael Moran: That’s all right.


GlobalPost: And then we can take some questions.


Michael Moran: Absolutely. Let’s just talk for a second about Iran and Israel. The problem that everybody seems to run into in talking about what the Israelis should do: first of all, you have to pass the question of is Iran an existential threat to Israel. Do we take Ahmadinejad at face value when he says that he wants to wipe Israel from the face of the map? That’s the first question you have to ask. And there are people who say to accept that on face value is to play into Iran’s hands and to vastly overstate the power they have in the region—that, essentially, this is their scare tactic. Now, that’s easy for us to say here in the United States. From the Israeli point of view, in a country the size of New Jersey, from the standpoint of many Israeli security thinkers, they can’t take that risk. So the next question becomes, what do you do about it? The United States is fairly clearly not going to be launching unilaterally any kind of military action against Iran right now. The United States seems to have come to a position where they are beginning to come to terms with the idea of a nuclear-armed Iran, or at least a plug-and-play, Japan-style Iran, which has the technology and ability to nuclearize very quickly if they wanted to.


So that means that the U.S. is looking at this from a détente standpoint, and possibly eventually negotiations. The Israelis don’t see that at all. The Israelis still seem to favor some kind of action. If that action happened, you have to say, what would be the results? Geopolitically, I sketched it out a little bit before—you’ll see that Iran has many, many options to strike back. And the Iranians have said this themselves—there’s no such thing as air strikes against Iran. This is war. You hit us, we’re going to hit you back, and we’re going to keep hitting you back.


The other thing about it is, the Israelis might very well draw the United States in, whether it’s inadvertent or deliberately, by any action they take, because one of the many ways that the U.S. could get drawn in is by Iranian allies attacking U.S. forces in Iraq, by the U.S. bases in Bahrain and other places in the Gulf being struck by Iran’s rather large missile force—there’s all sorts of ugly things that could happen. And there are, obviously, many, many economic implications as well. The investment implications here are pretty severe.


GlobalPost: In The Atlantic, Jeffrey Goldberg wagered that there’s better than a 50 percent chance that Israel would launch a massive air strike on Iran in the first half of 2011. Are you equally pessimistic, briefly?


Michael Moran: Not really, actually. I don’t think that’s likely in the first half. There was also a theory floating around that Netanyahu was advancing this idea of an Israeli loyalty oath to be given to every Israeli citizen as a kind of sop to his right-wing coalition partners, so he could extend a settlement freeze in exchange for an American green light to strike at Iran. You know, the reality is, the Israelis recognize that should they strike at Iran right now, it will create enormous headaches for their major ally in the region, the United States. The U.S., I don’t think, has given any kind of green light to this.


Now, having said that, the one dynamic which is playing in its favor is that the longer they wait, the harder it is to do any significant damage to Iran’s nuclear facilities. Most analysts I see don’t believe it’s possible to do a lot of lasting damage to this program at this point anyway.


So that diminishes the value of going in and striking. This isn’t Operation Desert Fox. I don’t know if anybody would remember that, but in the late 90s, the Clinton administration went in and basically polished off what they thought were the remaining Iraqi nuclear facilities. As it turned out, they did a pretty good job, because there weren’t any after we went to war and looked for them.


But this is a much different situation. The Iranians have had a long time to prepare for these type of strikes. They’ve learned from the Iraqi experience, and they’ve also got, as I said—unlike Iraq, which is fairly isolated—they’ve got a lot of ways they can affect the global economy and strike back.


GlobalPost: All right. Let’s turn back to Europe. We have a dismal convergence of debt, lackluster economies, austerity and political backlash strikes, etc. Yet after a dip over the summer, the financial markets seem to be comfortable with this debt crisis. What’s your take? Is this head-in-the-sand behavior?


Michael Moran: No, I think that financial markets, generally speaking, see opportunity, and they seize upon it. I think there’s nobody playing in the markets right now who’s not concerned that they are at the top of it, or at the top of the latest strike. The markets are very touchy right now—the volumes are very low; I think that says a lot. So, with regard specifically to Europe, the rescue package that was fashioned last spring for Greece—or actually early summer—for Greece, with the IMF, the Germans, and other countries pitching in for Greece, staved off the worst of the crisis. The bond market was calmed, the country now has been able to—at rather exorbitant prices, but still, at least they’ve still been able to basically fund their operations. The problem is, as you look down the road, the currency crisis that seems to be on the horizon is working very much against the solution to these problems in what everybody calls the “pigs”— Portugal, Ireland, Italy, Greece, and Spain, the countries that have the most wildly out of fiscal situation. What happens when you have a currency war is the actual value of these countries, from the perspective of the markets, who can’t control their own currency, don’t have their own national currency, if the Germans want to keep the Euro high, that’s going to make it very difficult for Greece and Portugal and Spain to return to any kind of competitiveness, which is what they need to do grow themselves out of this situation. It’s causing a kind of terrible backlash in economic terms for these countries.


The Germans are riding high because they’ve been able to export their way into growth this year. There’s quite a strong possibility that won’t last, though, because the consumption in their markets is simply falling off, and that includes China, where they’ve done quite well, and includes the United States, where consumption is still soft and a problem. So the prognosis for these countries that are troubled in Europe is more restructuring. And we actually think here at RGE, there’ll have to be some kind of haircut taken by creditors, and that’s going to really hurt the markets.


GlobalPost: I’d like to provide an opportunity for people in the audience to ask some questions. If you do have a question, first of all we ask you to keep them short and ask only one question. To ask a question, what you need to do is press Star-6 to unmute your phone, and then we will actually call on you based on the last four digits in your phone number. So, if you have a question, it’s a good time to press Star-6, and my colleague Rick Byrne will call on you. Any takers, Rick?


Rick: We do have a taker. The person with the last four digits 0938 has a question. Please go ahead.


Listener: Hello, I’m Debbie Bernstein. The currency situation with China seems to be somewhat insoluble in that the Chinese government is sort of riding on the back of the tiger. They need to maintain a level of expansion of their domestic—among their people of their well-being. And that seems somewhat dependent on this currency imbalance. So I’m just wondering how you see that effect working out.


Michael Moran: Well, I think you’re right. Economists reckon that China needs to grow approximately 8 to 9 percent a year to sustain a favorable job balance just for the number of people who are entering society’s job market every year, and to help continue to absorb the agricultural workforce, which has been fleeing rural areas in China for the last 15 years and crowding into ever-larger cities. So, yes, that’s true. The rest of the world tolerated that for a while but now is saying, hey, you have 10 percent growth, we have 10 percent unemployment. Something’s gotta give here. Our people are bearing the pain. You’re over there shaking your finger at us and telling us our model is wrong. Well, if you don’t have a model that can sustain a little pain in an economic downturn of this magnitude, then it’s not our model that’s wrong.


So there’s this kind of overall competition developing between the state authoritarian model that China espouses and the market liberal model that typifies the U.S. So there’s that overlay. But when you get down to brass tacks, the fact is, most of the world’s developed economies, the advanced economies, want their currencies to weaken right now. But you cannot weaken one without strengthening another. So China has really got everybody locked into a situation that’s unhappy for everybody except China. Even its neighbors in the emerging market, large countries like India, Indonesia, Malaysia, Singapore, decent-sized economies like Australia—they want the Chinese to go down, too, because it’s hurting them competitively. Their labor markets are—I’m sorry, their output is being priced very poorly vis a vis China right now.


So I do think there are ways that this can be forced upon the Chinese. The IMF has started to speak up, and while they don’t have any particular written authority to do this, they are now chiding China and saying, look, if you want to be a big player in global economics, you have to act that way, and you have to act with responsibility, and it’s clear that one of the things that’s wrong right now is the RMB, their currency has to be revalued. So there’s a lot of pressure on China. They don’t want to give in for the same reasons they don’t want to give in to the Japanese over tiny islets in the East China Sea. But, ultimately, I think they will give to some extent.


GlobalPost: Excellent question. Rick, do you have another question?


Rick: We do.


GlobalPost: Feel free to go, Rick. Sorry, before you go, Rick, can I ask also, if the person who just asked a question, if you can press Star-6 again to unmute yourself, that would be great. We have a little background noise here.  Go ahead, Rick.


Rick: The person with the last four digits 0859 can go ahead and ask a question.


Listener: Good afternoon, gentlemen. My name is George Igler and I work for Sovereignty Research in London. I wanted to ask about the question of nationalism as a factor over the horizon that can possibly have serious consequences to the integrity of supernational bodies in the future. I don’t think I need to go too much into why this is important, so I’ll leave that with you.


Michael Moran: OK. Absolutely. That’s a very good question. One of the most dramatic and surprising developments of the past couple years has been the extent to which nationalism has raised its ugly head within the Euro Zone. In Germany, the electorate has taken one haircut after another over the past 15 years, being told, well, we’ve got to accept the unification for the sake of Germany’s reputation in the world. They took another one when the common currency was created—essentially, they gave up one of the most powerful currencies in the world in order to do that. Accepting wave after wave of new entries into the EU—all of these things by and large diminished the value of savings of average German workers. So now, when Greece comes along and nearly defaults and Germans are asked to bail them out, a certain kind of nationalism struck that hadn’t been seen in a while in Germany, and really caught their politicians by surprise.


Now, it’s not just the Euro Zone. You’re seeing this in China. Chinese nationalism was vastly underrated for years, and it’s a political time bomb for the Communist Party there, too, because of course Chinese nationalism is something that can work both ways in China. There’s also the nationalisms of Chinese minority groups as well, the Tibetans and the Uighurs in the northeast.


But the Chinese-Japanese relationship is poisoned by nationalism. Japan’s has been muted over the years, it’s been somewhat taboo for the right to really speak out forcefully, but things have changed in Japan as well. The Japanese are seeing themselves muscled out of second place in the world economic order, they’re seeing themselves challenged by the Chinese navy for the first time in history, really. They’re seeing their interests in Korea really being flouted by the Chinese. It was not long ago that a Japanese minister actually floated the idea of a Japanese nuclear arsenal because of what was going on in North Korea.


So, it’s a different kind of thing going on in Japan as well. You could take nationalism and throw it almost anywhere on the globe and see that it’s a potential irritant, but in those two places it’s particularly interesting that it’s risen again. The United States, to some extent, has been going through a—I would call it kind of a fit of nationalism since 9/11. I think the U.S. is beginning to come to terms with looking at the world from the view of a realistic power that remains overwhelmingly larger in military and economic strength than most, but which clearly understands that the trajectory is changing, now. That’s a good, healthy process, not just for the U.S., but for everyone.


Again, nationalism in Asia in particular, but also within the EU—those have been some surprising developments.


Listener: I would definitely agree with all of that. Perhaps I’d only just add that the interesting thing is—taking up the examples that you raised, Greece and Germany—how it is that the populaces are asking themselves profoundly different questions, one about social policy, one about economic policy. They’re dissatisfied. They’re dissatisfied with supernational bodies and political opportunists are emerging who are saying, for entirely different problems, that the answer is the same thing, and that answer is nationalism. Thank you very much for your time.


GlobalPost: Rick, do we have another question?


Rick: We do. We have a question from 7231.


Listener: You’re very informative and factual, and it’s all leaving me with a kind of numb feeling. I think immigration and currency go hand in hand. My wife just came back from Norway and they didn’t want to take the U.S. dollar—they kind of laughed at her, and she had to—nobody wanted to take it, so I don’t know how to process all the information you’ve given me. As Americans, do we have to figure we’re going to become a second-world country, after all this?


Michael Moran: No, no no. I think you could definitely overdo that analysis. I joked a couple of days ago that the U.S. is a submerging market, which would put it in a whole new category.


But I think that’s not true. We’re not that gloomy, here, although apparently we have a reputation for being doom-like. But, ultimately, the United States is in a much better position than all the advanced economies. And when I say that, of course, I’m talking about the old G7—Canada, Australia, France, Britain, etc. The Germans are also in very good shape.


The reason I say this is that—and this goes to the end of my last answer—the United States is coming to terms with the fact that this is not going to be the American century, Part Two. We were in the position, much like China—obviously with a lot of very different dynamics—in about 1900. We were becoming the world’s factory, we were an overwhelming source of capital and expertise, and we were gigantic compared to our competitors; the French, the British, were rather small countries compared to the United States once it got its act together.


That’s where we are now. And the scale is different, but the Indians and the Chinese, I guess you could throw the Russians and the Brazilians in there, but I don’t believe that they’re frankly on the same par. They are very large countries that are beginning to get their acts together. The difference, of course, is that we were also the front of innovation in the 20th century. I’m not sure I would say that about China right now. China is very good at the low-end stuff; research and development, maybe not. India probably has a better shot at displacing the U.S., or parts of what we do there.


But we’re talking about things that are going to take place over the course of decades. Again, the United States is very good at adapting. We’re very good at innovation. We also have a highly educated workforce, we still have the best universities in the world, the best research and development science. So I think there’s no question that we’re going to be relatively less powerful, but the “relative” part of that is the most important thing to focus on. No one in the world has an aircraft carrier that compares to the 13 that we float around the planet. So, in military terms, no one even wants to compete with us right now. You know, you can make a big scare story out of China’s military spending, but it is—I’m going to come up with a term that is not accurate, but I would imagine it’s not even equal to what the budget of the state of California is. So it’s not on par to us, and they don’t even show the ambition of taking us on in that respect yet, so I wouldn’t get too worked up about it.


GlobalPost: You’re really sounding like an optimist, Michael.


Michael Moran: Yeah, I might get myself fired.


GlobalPost: Yeah, that’s not your job, is it?


At this point, I have one last question that I’d like to ask you. It’s been a really interesting call. And this one I want a really short answer on. Several months ago in the Financial Times I believe the firm put the chance of a double-dip recession at something like 20 percent. Can you give me a number these days? Are you still sticking with that number?


Michael Moran: No, actually, we’ve moved on quite a bit. That was revised in the summer to 40.


GlobalPost: 40 percent.


Michael Moran: Yes. We see actually a very, very serious problem ahead. Partly—and now, there’s a couple of things happening. You want a short answer? The short answer is 40. A little context there: the mid-term elections are going to produce constipation. That’s the best word for it. It’s worse than gridlock in Washington. Whether the House goes GOP or not, we’ve seen from the Senate, with 59 votes in the Senate you can’t get anything done. So you need 60, and there’s no way the GOP takes 60. So you end up with really super gridlock in Washington.


Number two, the U.S. corporations are sitting on gigantic loads of cash; they’re not spending. And they’re not spending because they remember what it was like in 2009 when the credit markets collapsed. And they don’t feel like they have enough clarity over the future of either regulation or of consumer confidence in spending that they can let go of these gigantic amounts of money that they’ve piled up. Number three, no one’s hiring. You can look at those job figures—if you look at them week over week, it’s a mug’s game. Or month over month even. We’re nowhere near the one bright spot in the entire year this year, from March to April, where there was actually job creation. Since then, there’s been what we at RGE have been predicting for years now: anemic growth, subpar, nowhere near the potential of the U.S., and really no particular reason to think that’s going to turn around quickly. We’re in a bad situation where we need to deleverage, essentially, you know, we have to pay our debts as a nation. If you want to put it simply, we went on a five- or six-year drunk, and woke up the day after Lehman Brothers collapsed with a hell of a hangover. And it’s going to last a little while. There’s no quick cure.


GlobalPost: Excellent. Well, it wasn’t short, but it was pessimistic, which brings us back to …


Michael Moran: —We like to think of it as realism. Not as popular a term in the first part of the decade, but we’re going to try for it in the second.


GlobalPost: Thank you very much for joining us today, Michael, it was a fascinating call. I’d like to remind listeners of the Web sites I mentioned earlier: Roubini Global Economics If you enjoyed the call, please consider joining GlobalPost. You can find out more information at, or just see the link on our nav bar. And if you have a need for high-quality research around the world, visit Thanks again, Michael.


Michael Moran: Thanks again, everybody. Bye now.