Forget Portugal, Says Roubini — Worry About Spain

Forbes ^ | 4/6/2011 | Chris Barth

[bruinbirdman]

As Greece and Ireland flounder in Europe, many analysts are turning their gaze to Portugal, the PIIG nation deemed most likely to follow suit. Economist Nouriel Roubini isn’t worried about Europe’s twelfth most populous country, however; he’s more concerned with Portugal’s larger next door neighbor, Spain.

“I think the big question is not Portugal — that is too small — but rather whether the contagion could spread, over time, to Spain, a country that is on one side too big to fail, but from the other side too big to be saved,” he said late last week on Bloomberg’s The Pulse.

Citing fundamental risks in unemployment, housing, Spain’s financial system and the country’s ability to compete with its EU counterparts, Roubini pinpointed the nation as a situation worth attention as barometer of the spread of European contagion. Spain will have to make hard choices in order to shield itself from contagion, according to Roubini, including accelerated structural reform and enforcing fiscal austerity.

“There have been reforms that go in the right direction, but much more radical reforms need to be done to stabilize the economic, financial and fiscal conditions of Spain,” said Roubini.

Roubini also touched on the potential for a rate hike by the European Central Bank. He believes the ECB could raise rates by as much as three times over the course of 2011, to 1.75%.

“I understand the logic of the ECB decision,” Roubini admitted before going on to outline the risk of a rate hike. “You have five countries in the periphery where there is almost no growth or contraction, where you have severe banking problems, where you have had loss of competitiveness, where there is a need to restore economic growth. And I fear that an early hike is going to increase

[Jonty30]

There are two really good ages to be, for what is coming.

80+ - whatever happens, you likely won’t live long enough to suffer the worst of it.

3 years or younger, you’ll be too young to remember what you’ve suffered through.

Everybody else is frucked.

[dr_lew]

3 years or younger, you’ll be too young to remember what you’ve suffered through.

I am acquainted with several of these, and I am not so sanguine.

[Ghost of Philip Marlowe]

The service on our debt is fast approaching 100% of GDP. No nation has survived that.

What you see happening to the PIIGS is exactly what will happen in the US very soon.

The riots in Greece over austerity is a little girl’s slumber party compared to the violence that will hit US streets.

[aquila48]

“The service on our debt is fast approaching 100% of GDP. No nation has survived that.”

I know we’re not in great shape, but that statement is preposterous.

Our GDP is nearly 15 trillions. The federal debt service is about $450 billion - that’s 1/30th of the GDP.

[bruinbirdman]

"that’s 1/30th of the GDP"

It's nothing that 10% inflation for 5 years won't fix. I can stay in front of that.

yitbos

[agere_contra]

The federal debt service is about $450 billion - that’s 1/30th of the GDP

At current interest levels that's true.

But when the USD loses reserve status the Fed will need to pay at least 6% interest: maybe more.

[Ghost of Philip Marlowe]

The deficit. Relax.

[aquila48]

Even the deficit is only 10% of the GDP.

I think what you mean is the national debt - that’s all the deficits put together from the time of Washington. As to whether nations have survived that, Japan has a national debt of TWICE their GDP and it’s still hanging in there - in fact the yen is a lot stronger than the dollar.

There’s a lot of things that go into an economy and just looking at one number doesn’t tell you anything.

Again, I’m not trying to defend our state of affairs, just clarifying the facts.

[Ghost of Philip Marlowe]

Dude, I was specifically talking about the debt-to-GDP ratio, which is closing on the gap of 90%. No nation has ever successfully reversed a debt-to-GDP ratio of 90%. Japan is at 200%. The PIIGS nations are a good example of where we are headed. The riots in Greece are a slumber party compared to the violence-in-the-streets that our “special-interest group” state-dependent “army” will exact if the government tries to enact any type of “austerity” program.

Look for the left to start calling the piss-poor spending cuts Bonehead just caved to as “austerity” measures.

And please stop nit-picking. This isn’t econ-101. We’re all just trying to spread the word that the country is in the fiscal s***-hole and a $40-billion cut is actually a “win” for the Left.