Nouriel Roubini, the much heralded NYU economist who has gotten much attention – and the nickname Dr. Doom – for his gloomy predictions in the past few years, isn’t exactly confident in Ben Bernanke or the US economy. Over the past few days he has taken to Twitter to voice his concerns on the recent market free fall, the potential for a double dip and the ongoing crisis in Europe. Today, on the heels of currency market intervention by Japan and Switzerland, Roubini predicted that a third round of quantitative easing here in the United States, tweeting, “QE3 started in Japan & Switzerland via fx action &/or monetary easing. Fed will eventually get to QE3 but it will be too little too late.”
Japan and Switzerland have both gotten involved in currency markets over the past two days, stepping in to prevent outsized appreciation in the yen and the Swiss franc. Switzerland cut interest rates on Wednesday in an attempt to weaken the franc, while the Japanese government and the Bank of Japan collaborated on moves today in an attempt stifle similar appreciation in the yen.
Roubini has previously said that he thinks future rounds of quantitative easing are on the way. As he pointed out in another tweet today, “I argued last year we will get QE3, then QE4 & then QE5 (the Fed, as in the 1950s, targeting the 10yr Treas at 1.5% once all else fails).”
In January, when he sat down with Steve Forbes, Roubini identified states and local municipalities as potential recipients of QE3.
“Until now, we have back-stopped the states through the federal budget – transfer payments of a variety of sorts to make sure that they don't blow up. At this point, the political willingness to do more of it is limited,” Roubini explained.
“During the crisis, [the Fed] bought even toxic assets of Bear Stearns and of AIG. They could go along the lines – if there are financing pressures like the Europeans – of trying to make stop all the state governments that are in trouble. If Congress doesn't do it, there'll be some pressure on the Fed to do that. That might be a version of QE3, after QE2. QE1 was mostly agencies -- Fannie and Freddie, QE2 was treasuries mostly. QE3 could be state and local debt.”
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