Nouriel Roubini, also known as “Dr. Doom” for his often pessimistic look at the economy, managed to call the credit crisis before the great recession actually happened. In an interview Roubini, who has worked at the IMF, the Federal Reserve, World Bank and Bank of Israel, spoke with Credit Suisse, about potential problems in the Chinese economy which could spill over into the rest of the world.
Roubini thinks China has too much savings, too much investment and not enough consumption. Much of the GDP is re-invested, and into bad assets and poor investments. In addition, there are increasing debts and an excess of manufacturing capacity as opposed to growth in service industries. Roubini thinks the Chinese government has to be serious about creating prompt and long-lasting structural reforms if it is going to forestall a financial crisis, particularly given its aging population.
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What happens in China does not necessarily stay in China. A slowdown in the Middle Kingdon can spell the end of the commodity super cycle and affect overseas companies that do business with China. In addition, as the Fed tapers and interest rates in the U.S. rise, there could be domestic volatility that may make the U.S. economy more vulnerable to weakness abroad.