Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
To balance the bullishness of Kass, let us introduce Nouriel Roubini to his first appearance on Market Montage. 
Of course the market is not the economy (sometimes for long periods of time) so you have to segregate one from the other but in this very extensive interview with The Economic Times (of India) Roubini gives his thoughts on a whole host of subjects. Full interview here, some excerpts below:
Will 2012 be the year in which the euro unravels and the union comes to an end?
The economic and financial conditions of the Eurozone are very severe. Germany and France cannot impose their will on all the other countries because the decision of the Eurozone had been taken by consensus. The trouble with the Eurozone right now is that you have severe stock imbalances, large stocks of public debt, liabilities of their financial system and flow problems.
There has been the loss of competitiveness at the periphery of the Eurozone. There are large external imbalances and all the policies that the Europeans are pursuing right now, fiscal austerity are going to make the recession in the Eurozone worse.
Not just Greece, but a number of other countries over the next couple of years will have to restructure their public debt and private ones in a coercive way. I also expect that one or more members of the Eurozone will eventually exit the Eurozone.
If it is a small Greece exiting, that can be managed. If eventually it were an Italy or Spain having to exit, that would effectively be a break up of the Eurozone. So of all the sources of systemic risk in the global economy, certainly the problems of the Eurozone are the most severe.
You do not expect a complete breakdown of the European Union? Are the concerns that are coming in on the status of the euro exaggerated?
No. Over time, not this year, some of the member states are going to restructure their debts in an orderly and in some cases disorderly way and eventually starting with Greece, but potentially even other countries could exit the Eurozone.
I do not expect a break up of the Eurozone in 2012, but if you take a horizon of the next 3 to 5 years, there is a meaningful probability that a number of the member states of the Eurozone might eventually decide to exit the Eurozone and eventually a break up of the Eurozone is going to occur.
The Eurozone crisis is not going to be a sudden wreck. It is going to be a slow motion train wreck where initial economic difficulties, financials, fiscal then restructuring and eventually exit might occur. Separate countries will have difficulties at different points in time, Greece, Ireland, Portugal, Italy and Spain. It is not going to be a sudden collapse.
We have seen some good news coming out of the US. Are these green shoots or do you believe these are one-offs which will probably taper away over the next couple of quarters?
Good news is going to be temporary. In terms of some of macro data, the US has been better than expected, but economic growth in the US is going to be anaemic this year. Subpar below trend, at best 1.5% growth year over year for a number of reasons.
First of all, the problems of the Eurozone and through trade and financial links, those are going to slow down economic growth in the United States. Secondly, there will be a significant fiscal drag in the United States this year because of the gridlock in Congress.
Thirdly, since domestic demand is going to be weak because of private and public sector deleveraging, the way that the US could grow faster is by an improvement in net exports. However, trade balance is not going to improve because growth is slowing down in the rest of the world and Europe. That’s going to be bad for US exports. Also, the dollar is going to be stronger and not weaker and that’s going to worsen the US trade balance.
Oil and energy prices are going to remain high because of geopolitical risks in the Middle East and, therefore, the oil import bill for the US is not going to improve. Therefore, the net exports of the US are not going to improve and that’s going to be another factor that’s going to be a source of economic weakness. Finally the US consumer is still very challenged both income-wise, wealth-wise and debt-wise.
Income is not growing very much because the labour market is improving only weakly. The wealth has been sluggish because equity market has been flat and housing prices have been falling. The US consumer still has a huge amount of debt and debt servicing. The cost of deleveraging of the US consumer has been just postponed. All these factors suggest that economic growth is going to remain anaemic in the United States in the next few quarters.
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