Tags: Nouriel Roubini | Growth | Central Banks | Stimulus

Roubini: Central Banks, Governments Should Adopt More Stimulus

Monday, 02 March 2015 01:30 PM


The negative interest rates that have popped up in some developed countries, including Switzerland and Germany, aren't necessarily a bad thing, says ace economist Nouriel Roubini of New York University.

"Over time, negative nominal and real returns may lead savers to save less and spend more," he writes on Project Syndicate.

"And that is precisely the goal of negative interest rates. In a world where supply outstrips demand and too much saving chases too few productive investments, the equilibrium interest rate is low, if not negative."

Five-year German government bonds yield negative 0.09 percent.

If developed economies remain sluggish, negative interest rates could become "the new normal," Roubini says. The eurozone economy grew only 0.9 percent last year.

"To avoid that, central banks and fiscal authorities need to pursue policies to jump-start growth and induce positive inflation. Paradoxically, that implies a period of negative interest rates to induce savers to save less and spend more."

Bottom line: "the longer such policies are postponed, the longer we may inhabit the inverted world of negative nominal interest rates," Roubini explains.

Meanwhile, Charles Biderman, CEO of TrimTabs Asset Management, doesn't buy economists' consensus view that the Federal Reserve will begin raising interest rates around mid-year.

"The Fed will not be able to raise interest rates this year," he writes on CNBC.com. "Why? Sustainable economic growth has not and is not occurring." Outside of strong employment growth, the economy doesn't so look so hot, he said.

GDP expanded 2.4 percent last year, the fastest pace since 2010, but more recent data look bleak, Biderman says. "The U.S. economy is slowing and could be entering into a shallow recession," he writes.

"The TrimTabs Macroeconomic Index, a correlation weighted composite index of leading economic variables, fell 0.6 percent in the past 10 weeks and is 0.8 percent below its October 2014 peak."

And what's stifling demand? "No-growth governmental policies," Biderman argues. "Since 2008, there have been fewer new businesses being created than those that are closing."

Fed Chair Janet Yellen said in her congressional testimony last week that the central bank is unlikely to raise rates at its next two meetings — March and April. The Fed has kept its federal funds rate target at a record low since December 2008.

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The negative interest rates that have popped up in some developed countries, including Switzerland and Germany, aren't necessarily a bad thing, says ace economist Nouriel Roubini of New York University.
Nouriel Roubini, Growth, Central Banks, Stimulus
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2015-30-02
Monday, 02 March 2015 01:30 PM
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