Dr. Doom: why bondholders are partly to blame for America’s fiscal mess

Nouriel Roubini says investors aren’t putting enough pressure on Washington politicos

(Virginia Mayo/AP Photo)

Expect the U.S. to continue kicking the fiscal cliff, the debt ceiling and similar artificial deadlines down the road for a while longer, economist Nouriel Roubini told CNN in Davos, Switzerland.

READ: The debt ceiling: what just happened and what’s up next

At this year’s World Economic Forum Annual Meeting, Roubini, a.k.a Dr. Doom, was his customary gloomy self.

America is in for another twelve months of “anemic, subpar growth,” which he pegged at 1.6 per cent, and  a “very high” unemployment rate. This despite a rebounding housing market, a helpful boost from the energy sector (think: shale oil and gas), manufacturing employment looking half-decent and the Federal Reserve continuing to pump money into the economy.

Most of the blame for dragging down what could be a healthy pace of growth, Roubini said, goes to the usual suspects: Washington lawmakers. Their stop-and-go tax hikes and spending cuts will likely be enough to shave 1.4 per cent off GDP growth in 2013, but not enough to address the U.S.’s long-term debt woes.

But financial markets are also to blame for America’s paralysis, Dr. Doom continued. “The bond vigilantes are asleep at the wheel,” he said, hinting at the rock-bottom interest rates at which the U.S. has been able to borrow despite its gargantuan debt and seeming incapacity to do anything about it.

Investors’ concerns over countries like Greece, Spain, Italy and Portugal have forced hard political choices in Europe, he noted. Alas, that blessing in disguise has so far eluded Washington.

Read more of our Davos coverage.




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Dr. Doom: why bondholders are partly to blame for America’s fiscal mess

  1. “Washington lawmakers.” Why doesn’t he just come out and say it’s Tea Party Republicans? I can’t see how you would blame either moderate Republicans or Democrats for creating either the Fiscal Cliff or the Debt Ceiling paralysis. The US could have a bi-partisan debt reduction and fiscal stabilization plan tomorrow if there wasn’t a rump of ideologues in the Congress.

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