Economics 2011

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THE ECONOMICS OF GREED LOOKING BACK AT THE ECONOMIC CRISIS FOR 2011!

HOW 25 PEOPLE CAUSED MILLIONS TO SUFFER!WHAT IS PREDICTED FOR 2013!

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IT MAYBE 2012 BUT IS THIS A NEW YEAR

The New Year usually signals a beginning. A new start, increased hope of good things to come, a look back at our failures and successes and a promise to rid ourselves of failure and strive for success. Or as an inspiration we say "As sure as the spring will follow the winter, prosperity and economic growth will follow recession." - Bo Bennett But its been 4 years and all we have seen is an incompetent Congress, incompetent bankers, incompetent investors, and an incompetent public. All still suffering from terminal greed, all still suffering from “me first”, all still suffering from blaming others for their own failures, all still suffering from discrimination and hate. Nothing will change until incompetence is replaced by competent individuals working together to generate economic benefits that affect society and not the few.The individuals that started “occupy” or the “99%” should have had as their primary agenda, getting the states and than the Federal Government to put term limits on the senate and legislative branches and to clean up the farce that gives even a one termer a life time pension and other unscrupulous benefits. If we behaved like Congress we would either be in jail or looking for a new job. I’d like to see most of the present members looking for a new job.This Power Point examines 3 areas of today’s economy. A look back at 2011, the people most responsible for the present crisis and a look at what one economist has predicted for 2013.

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WHAT A DIFFERENCE A YEAR MAKES LOOKING BACK AT THE ECONOMIC CRISIS FOR 2011!

In What a difference a year makes …, Olivier Blanchard, Chief Economist of the IMF, reflects on the year that just passed. Back in January last year, it seemed to most observers that 2011 was going to be a year of solid economic growth due to strong fiscal and monetary stimuli. Most also expected an improvement in the business climate and in consumer sentiment.

I, for one, expected high growth in 2011 but expressed serious doubt that it could persist beyond 2012. I thought that it would falter soon after the stimuli would be retired. It all cratered much quicker than anybody anticipated. Below, Olivier Blanchard draws four lessons from 2011 on why this happened and why the crisis is lingering.

Although there was growth in the first half of 2011, rather than improving over time, economic growth faltered in the second half of the year. To compound the problem, increasingly worrying woes in peripheral Europe finally quashed any hopes that the outlook would soon improve in early 2012. As a result, investment and consumption growth remained modest and the situation is likely to persist into 2012. SME (Small & Medium Enterprise) investment also suffered from the continued unwillingness of banks to expand their balance sheets while consumers were constrained by the weight of their indebtedness. And, as inflation did not pick up despite the coordinated best efforts of western central banks, the process of deleveraging continues to progress at a snail’s pace.

This friction is obviously only prolonging the pain of the crisis as it pushes further down into the future the end of this sub-par growth episode. In other words, there is nothing in the cards yet to signal that the proverbial pent-up demand from the private sector (which usually forms during the recession) could spring up anytime soon and eventually propel the economy into a sustainable and lasting recovery.

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There was hope this summer that some policies would target damaged balance sheets. The rumored initiatives, aimed at improving the financial situation of underwater home owners whose obligations continue to be a drag on economic growth, never came to life. Some policy makers then started to talk about the need to engineer mild inflation to gradually reduce the burden of our debt on economic growth. It’s a dangerous path to follow and a difficult policy to implement because it could cause interest rates to rise instead. And who needs higher interest rates when we are crippled by tons of debt?

To ensure that such scheme would work, inflation would have to increase by more than interest rates, thereby moderately reducing real interest rates on a long term basis (i.e. for 10 to 20 years). How to successfully implement such an outcome is being discussed at the highest levels of government. It is the solution which is now favored and being considered as the cure to the debt problem. The scheme is being labeled “financial repression”. It is nothing new. Such a strategy was used to gradually get rid of government debt in the decades that followed WWII. Yet, I had not heard of it in years. And for good reasons: alchemy does not usually work!

To succeed it requires that governments increase their control on banks (through regulation and/or nationalization of banks) to force them to channel funds to the public sector at negative or very low real long term interest rates. With efficient capital markets today this is a very difficult strategy to engineer as capital rationing - which would favor public borrowers over private ones - risks choking SME investments and inhibiting entrepreneurship; the machines behind job creation in this country. This is because small firms and would-be entrepreneurs would have to pay higher interest rates to finance their investments and ventures as governments would be crowding out financial markets.

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The winners are thus easy to identify: besides governments, they would be large firms without cash constraints. If financial repression is implemented, there is no way to know if it could be successful but it would provide investors with an actionable asset allocation strategy that could be rewarding over the new few years: invest in large firms with tons of cash and little leverage and avoid government nominal bonds which will likely yields less than inflation.

The Blanchard article which was recently published on http://blog-imfdirect.imf.org/ the IMF Blog. The piece is also available in several languages (French, Arabic, Chinese, Japanese, etc.). Just click on the link above to have access to these translations or copy it to your browser:

We started 2011 in recovery mode, admittedly weak and unbalanced, but nevertheless there was hope. The issues appeared more tractable: how to deal with excessive housing debt in the United States, how to deal with adjustment in countries at the periphery of the Euro area, how to handle volatile capital inflows to emerging economies, and how to improve financial sector regulation.

It was a long agenda, but one that appeared within reach.

Yet, as the year draws to a close, the recovery in many advanced economies is at a standstill, with some investors even exploring the implications of a potential breakup of the euro zone, and the real possibility that conditions may be worse than we saw in 2008.

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Olivier Blanchard draws four main lessons from what has happened.

• First, post the 2008-09 crisis, the world economy is pregnant with multiple equilibria—self-fulfilling outcomes of pessimism or optimism, with major macroeconomic implications.

Multiple equilibria are not new. We have known for a long time about self-fulfilling bank runs; this is why deposit insurance was created. Self-fulfilling attacks against pegged exchange rates are the stuff of textbooks. And we learned early on in the crisis that wholesale funding could have the same effects, and that runs could affect banks and non-banks alike. This is what led central banks to provide liquidity to a much larger set of financial institutions.

What has become clearer this year is that liquidity problems, and associated runs, can also affect governments. Like banks, government liabilities are much more liquid than their assets—largely future tax receipts. If investors believe they are solvent, they can borrow at a riskless rate; if investors start having doubts, and require a higher rate, the high rate may well lead to default. The higher the level of debt, the smaller the distance between solvency and default, and the smaller the distance between the interest rate associated with solvency and the interest rate associated with default. Italy is the current poster child, but we should be under no illusion: in the post-crisis environment of high government debt and worried investors, many governments are exposed. Without adequate liquidity provision to ensure that interest rates remain reasonable, the danger is there.

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• Second, incomplete or partial policy measures can make things worse.

We saw how perceptions often got worse after high-level meetings promised a solution, but delivered only half of one. Or when plans announced with fanfare turned out to be insufficient or hit practical obstacles.

The reason, I believe, is that these meetings and plans revealed the limits of policy, typically because of disagreements across countries. Before the fact, investors could not be certain, but put some probability on the ability of players to deliver. The high-profile attempts made it clear that delivery simply could not be fully achieved, at least not then. Clearly, the proverb, “Better to have tried and failed, than not to have tried at all,” does not always apply.

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• Third, financial investors are schizophrenic about fiscal consolidation and growth.

They react positively to news of fiscal consolidation, but then react negatively later, when consolidation leads to lower growth—which it often does. Some preliminary estimates that the IMF is working on suggest that it does not take large multipliers for the joint effects of fiscal consolidation and the implied lower growth to lead in the end to an increase, not a decrease, in risk spreads on government bonds. To the extent that governments feel they have to respond to markets, they may be induced to consolidate too fast, even from the narrow point of view of debt sustainability.

I should be clear here. Substantial fiscal consolidation is needed, and debt levels must decrease. But it should be, in the words of Angela Merkel, a marathon rather than a sprint. It will take more than two decades to return to prudent levels of debt. There is a proverb that actually applies here too: “slow and steady wins the race.”

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• Fourth, perception molds reality.

Right or wrong, conceptual frames change with events. And once they have changed, there is no going back. For example, nothing much happened in Italy over the summer. But, once Italy was perceived as at risk, this perception did not go away. And perceptions matter: once the “real money’’ investors have left a market, they do not come back overnight.

A further example: not much happened to change the economic situation in the Euro zone in the second half of the year. But once markets and commentators started to mention the possible breakup of Euro, the perception remained and it also will not easily go away. Many financial investors are busy constructing strategies in case it happens.

Put these four factors together, and you can explain why the year ends much worse than it started.

Is all hope lost? No, but putting the recovery back on track will be harder than it was a year ago. It will take credible but realistic fiscal consolidation plans. It will take liquidity provision to avoid multiple equilibria. It will take plans that are not only announced, but implemented. And it will take much more effective collaboration among all involved.

I am hopeful it will happen. The alternative is just too unattractive.

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25 PEOPLE THAT HAVE CREATED THE ECONOMIC CRISIS

Time magazine has suggested that the entire Economic Crisis can be blamed on 25 people, some of whom we may never have heard of. Can this be true? Can the suffering of millions be boiled down to 25 individuals. I believe today’s crisis can be traced back to the political and financial decisions made since FDR instituted a strong set of procedures to preclude another depression. "Human beings, who are almost unique in having the ability to learn from the experience of others, are also remarkable for their apparent disinclination to do so." - Douglas Adams So it wasn’t because we decided to follow Keynesian Economics, although better economic theories exist, nor was it because we let the private sector create the wealth. The main reason for today’s crisis is because we didn’t learn the lessons that generated the Great Depression and didn’t listen to Keynes, himself, who stated that since the private sector is creating the wealth, we need a strong public sector to watch over and regulate the private sector to insure the vices that are inherent in our wealth creation system do not generate an unbalanced system of haves and have not's. For it is true that most of the wealth created by individuals did not come from their hard work but came from immoral and illegal practices that stepped on the backs of others for their own gain.So let’s look at the culprits and decide who above all is to blame!

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•Angelo MoziloThe son of a butcher, Mozilo co-founded Countrywide in 1969 and built it into the largest mortgage lender in the U.S. Countrywide wasn't the first to offer exotic mortgages to borrowers with a questionable ability to repay them. In its all-out embrace of such sales, however, it did legitimize the notion that practically any adult could handle a big fat mortgage. In the wake of the housing bust, which toppled Countrywide and IndyMac Bank (another company Mozilo started), the executive's lavish pay package was criticized by many, including Congress. Mozilo left Countrywide last summer after its rescue-sale to Bank of America. A few months later, BofA said it would spend up to $8.7 billion to settle predatory lending charges against Countrywide filed by 11 state attorneys general.

•Phil GrammAs chairman of the Senate Banking Committee from 1995 through 2000, Gramm was Washington's most prominent and outspoken champion of financial deregulation. He played a leading role in writing and pushing through Congress the 1999 repeal of the Depression-era Glass-Steagall Act, which separated commercial banks from Wall Street. He also inserted a key provision into the 2000 Commodity Futures Modernization Act that exempted over-the-counter derivatives like credit-default swaps from regulation by the Commodity Futures Trading Commission. Credit-default swaps took down AIG, which has cost the U.S. $150 billion thus far.•Alan GreenspanThe Federal Reserve chairman — an economist and a disciple of libertarian icon Ayn Rand — met his first major challenge in office by preventing the 1987 stock-market crash from spiraling into something much worse. Then, in the 1990s, he presided over a long economic and financial-market boom and attained the status of Washington's resident wizard. But the super-low interest rates Greenspan brought in the early 2000s and his long-standing disdain for regulation are now held up as leading causes of the mortgage crisis. The maestro admitted in an October congressional hearing that he had "made a mistake in presuming" that financial firms could regulate themselves

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•Chris CoxThe ex-SEC chief's blindness to repeated allegations of fraud in the Madoff scandal is mind-blowing, but it's really his lax enforcement that lands him on this list. Cox says his agency lacked authority to limit the massive leveraging that set up last year's financial collapse. In truth, the SEC had plenty of power to go after big investment banks like Lehman Brothers and Merrill Lynch for better disclosure, but it chose not to. Cox oversaw the dwindling SEC staff and a sharp drop in action against some traders.•American ConsumersIn the third quarter of 2008, Americans began saving more and spending less. Hurrah! That only took 40 years to happen. We've been borrowing, borrowing, borrowing — living off and believing in the wealth effect, first in stocks, which ended badly, then in real estate, which has ended even worse. Now we're out of bubbles. We have a lot less wealth — and a lot more effect. Household debt in the U.S. — the money we owe as individuals — zoomed to more than 130% of income in 2007, up from about 60% in 1982. We enjoyed living beyond our means — no wonder we wanted to believe it would never end.

•Hank PaulsonWhen Paulson left the top job at Goldman Sachs to become Treasury Secretary in 2006, his big concern was whether he'd have an impact. He ended up almost single-handedly running the country's economic policy for the last year of the Bush Administration. Impact? You bet. Positive? Not yet. The three main gripes against Paulson are that he was late to the party in battling the financial crisis, letting Lehman Brothers fail was a big mistake and the big bailout bill he pushed through Congress has been a wasteful mess.

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•Joe CassanoBefore the financial-sector meltdown, few people had ever heard of credit-default swaps (CDS). They are insurance contracts — or, if you prefer, wagers — that a company will pay its debt. As a founding member of AIG's financial-products unit, Cassano, who ran the group until he stepped down in early 2008, knew them quite well. In good times, AIG's massive CDS-issuance business minted money for the insurer's other companies. But those same contracts turned out to be at the heart of AIG's downfall and subsequent taxpayer rescue. So far, the U.S. government has invested and lent $150 billion to keep AIG afloat.

•Ian McCarthyHomebuilders had plenty to do with the collapse of the housing market, not just by building more homes than the country could stomach, but also by pressuring people who couldn't really afford them to buy in. As CEO of Beazer Homes since 1994, McCarthy has become something of a poster child for the worst builder behaviors. An investigative series that ran in the Charlotte Observer in 2007 highlighted Beazer's aggressive sales tactics, including lying about borrowers' qualifications to help them get loans. The FBI, Department of Housing and Urban Development and IRS are all investigating Beazer. The company has admitted that employees of its mortgage unit violated regulations — like down-payment-assistance rules —at least as far back as 2000. It is cooperating with federal investigators.

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•Frank RainesThe mess that Fannie Mae has become is the progeny of many parents: Congress, which created Fannie in 1938 and loaded it down with responsibilities; President Lyndon Johnson, who in 1968 pushed it halfway out the government nest and into a problematic part-private, part-public role in an attempt to reduce the national debt; and Jim Johnson, who presided over Fannie's spectacular growth in the 1990s. But it was Johnson's successor, Raines, who was at the helm when things really went off course. A former Clinton Administration Budget Director, Raines was the first African-American CEO of a Fortune 500 company when he took the helm in 1999. He left in 2004 with the company embroiled in an accounting scandal just as it was beginning to make big investments in subprime mortgage securities that would later sour. Last year Fannie and rival Freddie Mac became wards of the state.

•Kathleen CorbertBy slapping AAA seals of approval on large portions of even the riskiest pools of loans, rating agencies helped lure investors into loading on collateralized debt obligations (CDOs) that are now unsellable. Corbet ran the largest agency, Standard & Poor's, during much of this decade, though the other two major players, Moody's and Fitch, played by similar rules. How could a ratings agency put its top-grade stamp on such flimsy securities? A glaring conflict of interest is one possibility: these outfits are paid for their ratings by the bond issuer. As one S&P analyst wrote in an email, "[A bond] could be structured by cows and we would rate it."

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•Dick FuldThe Gorilla of Wall Street, as Fuld was known, steered Lehman deep into the business of subprime mortgages, bankrolling lenders across the country that were making convoluted loans to questionable borrowers. Lehman even made its own subprime loans. The firm took all those loans, whipped them into bonds and passed on to investors billions of dollars of what is now toxic debt. For all this wealth destruction, Fuld raked in nearly $500 million in compensation during his tenure as CEO, which ended when Lehman did.

•Marion and Herb SandlerIn the early 1980s, the Sandlers' World Savings Bank became the first to sell a tricky home loan called the option ARM. And they pushed the mortgage, which offered several ways to back-load your loan and thereby reduce your early payments, with increasing zeal and misleading advertisements over the next two decades. The couple pocketed $2.3 billion when they sold their bank to Wachovia in 2006. But losses on World Savings' loan portfolio led to the implosion of Wachovia, which was sold under duress late last year to Wells Fargo.

•Bill ClintonPresident Clinton's tenure was characterized by economic prosperity and financial deregulation, which in many ways set the stage for the excesses of recent years. Among his biggest strokes of free-wheeling capitalism was the Gramm-Leach-Bliley Act, which repealed the Glass-Steagall Act, a cornerstone of Depression-era regulation. He also signed the Commodity Futures Modernization Act, which exempted credit-default swaps from regulation. In 1995 Clinton loosened housing rules by rewriting the Community Reinvestment Act, which put added pressure on banks to lend in low-income neighborhoods. It is the subject of heated political and scholarly debate whether any of these moves are to blame for our troubles, but they certainly played a role in creating a permissive lending environment.

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•George W. BushFrom the start, Bush embraced a governing philosophy of deregulation. That trickled down to federal oversight agencies, which in turn eased off on banks and mortgage brokers. Bush did push early on for tighter controls over Fannie Mae and Freddie Mac, but he failed to move Congress. After the Enron scandal, Bush backed and signed the aggressively regulatory Sarbanes-Oxley Act. But when SEC head William Donaldson tried to boost regulation of mutual and hedge funds, he was blocked by Bush's advisers at the White House as well as other powerful Republicans and quit. Plus, let's face it, the meltdown happened on Bush's watch.

•Stan O’Neal•Merrill Lynch's celebrated CEO for nearly six years, ending in 2007, he guided the firm from its familiar turf — fee businesses like asset management — into the lucrative game of creating collateralized debt obligations (CDOs), which were largely made of subprime mortgage bonds. To provide a steady supply of the bonds — the raw pork for his booming sausage business —O'Neal allowed Merrill to load up on the bonds and keep them on its books. By June 2006, Merrill had amassed $41 billion in subprime CDOs and mortgage bonds, according to Fortune. As the subprime market unwound, Merrill went into crisis, and Bank of America swooped in to buy it

•Wen JiabaoThink of Wen as a proxy for the Chinese government — particularly those parts of it that have supplied the U.S. with an unprecedented amount of credit over the past eight years. If cheap credit was the crack cocaine of this financial crisis — and it was — then China was one of its primary dealers. China is now the largest creditor to the U.S. government, holding an estimated $1.7 trillion in dollar-denominated debt. That massive build-up in dollar holdings is specifically linked to China's efforts to control the value of its currency. China didn't want the renminbi to rise too rapidly against the dollar, in part because a cheap currency kept its export sector humming — which it did until U.S. demand cratered last fall.

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•David LereachWhen the chief economist at the National Association of Realtors, an industry trade group, tells you the housing market is going to keep on chugging forever, you listen with a grain of salt. But Lereah, who held the position through early 2007, did more than issue rosy forecasts. He regularly trumpeted the infallibility of housing as an investment in interviews, on TV and in his 2005 book, Are You Missing the Real Estate Boom?. Lereah says he grew concerned about the direction of the market in 2006, but consider his January 2007 statement: "It appears we have established a bottom."

•John DevaneyHedge funds played an important role in the shift to sloppy mortgage lending. By buying up mortgage loans, Devaney and other hedge-fund managers made it profitable for lenders to make questionable loans and then sell them off. Hedge funds were more than willing to swallow the risk in exchange for the promise of fat returns. Devaney wasn't just a big buyer of mortgage bonds — he had his own $600 million fund devoted to buying risky loans — he was one of its cheerleaders. Worse, Devaney knew the loans he was funding were bad for consumers. In early 2007, talking about option ARM mortgages, he told Money, "The consumer has to be an idiot to take on one of those loans, but it has been one of our best-performing investments.“

•Bernie MadoffHis alleged Ponzi scheme could inflict $50 billion in losses on society types, retirees and nonprofits. The bigger cost for America comes from the notion that Madoff pulled off the biggest financial fraud in history right under the noses of regulators. Assuming it's all true, the banks and hedge funds that neglected due diligence were stupid and paid for it, while the managers who fed him clients' money — the so-called feeders — were reprehensibly greedy. But to reveal government and industry regulators as grossly incompetent casts a shadow of doubt far and wide, which crimps the free flow of investment capital. That will make this downturn harder on us all.

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•Lew RanieriMeet the father of mortgage-backed bonds. In the late 1970s, the college dropout and Salomon trader coined the term securitization to name a tidy bit of financial alchemy in which home loans were packaged together by Wall Street firms and sold to institutional investors. In 1984 Ranieri boasted that his mortgage-trading desk "made more money than all the rest of Wall Street combined." The good times rolled: as homeownership exploded in the early '00s, the mortgage-bond business inflated Wall Street's bottom line. So the firms placed even bigger bets on these securities. But when subprime borrowers started missing payments, the mortgage market stalled and bond prices collapsed. Investment banks, overexposed to the toxic assets, closed their doors. Investors lost fortunes.

•Burton JablinThe programming czar at Scripps Networks, which owns HGTV and other lifestyle channels, helped inflate the real estate bubble by teaching viewers how to extract value from their homes. Programs like Designed to Sell, House Hunters and My House Is Worth What? developed loyal audiences, giving the housing game glamour and gusto. Jablin didn't act alone: shows like Flip That House (TLC) and Flip This House (A&E) also came on the scene. To Jablin's credit, HGTV, which airs in more than 97 million homes, also launched Income Property, a show that helps first-time homeowners reduce mortgage payments by finding ways to economically add rental units.

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•Fred GoodwinFor years, the worst moniker you heard thrown at Goodwin, the former boss of Royal Bank of Scotland (RBS), was "Fred the Shred," on account of his knack for paring costs. A slew of acquisitions changed that, and some RBS investors saw him as a megalomaniac. Commentators have since suggested that Goodwin is simply "the world's worst banker." Why so mean? The face of over-reaching bankers everywhere, Goodwin got greedy. More than 20 takeovers helped him transform RBS into a world beater after he assumed control in 2000. But he couldn't stop there. As the gloom gathered in 2007, Goodwin couldn't resist leading a $100 billion takeover of Dutch rival ABN Amro, stretching RBS's capital reserves to the limit. The result: the British government last fall pumped $30 billion into the bank, which expects 2008 losses to be the biggest in U.K. corporate history

•Sandy WeillWho decided banks had to be all things to all customers? Weill did. Starting with a low-end lender in Baltimore, he cobbled together the first great financial supermarket, Citigroup. Along the way, Weill's acquisitions (Smith Barney, Travelers, etc.) and persistent lobbying shattered Glass-Steagall, the law that limited the investing risks banks could take. Rivals followed Citi. The swollen banks are now one of the country's major economic problems. Every major financial firm seems too big to fail, leading the government to spend hundreds of billions of dollars to keep them afloat. The biggest problem bank is Weill's Citigroup. The government has already spent $45 billion trying to fix it.

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•David OddssonIn his two decades as Iceland's Prime Minister and then as central-bank governor, Oddsson made his tiny country an experiment in free-market economics by privatizing three main banks, floating the currency and fostering a golden age of entrepreneurship. When the market turned ... whoops! Iceland's economy is now a textbook case of macroeconomic meltdown. The three banks, which were massively leveraged, are in receivership, GDP could drop 10% this year, and the IMF has stepped in after the currency lost more than half its value. Nice experiment

•Jimmy CaynePlenty of CEOs screwed up on Wall Street. But none seemed more asleep at the switch than Bear Stearns' Cayne. He left the office by helicopter for 3 ½-day golf weekends. He was regularly out of town at bridge tournaments and reportedly smoked pot. (Cayne denies the marijuana allegations.) Back at the office, Cayne's charges bet the firm on risky home loans. Two of its highly leveraged hedge funds collapsed in mid-2007. But that was only the beginning. Bear held nearly $40 billion in mortgage bonds that were essentially worthless. In early 2008 Bear was sold to JPMorgan for less than the value of its office building. "I didn't stop it. I didn't rein in the leverage," Cayne later told Fortune.

Who do you think deserves the most blame?

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WHAT IS PREDICTED FOR 2013

Well if you have gotten this far, I’m sure you know by now that the deck is stacked and the individuals that set the rules insure they come out the winners. With all the countries crying for freedom, isn’t it amazing that we’ve been duped into thinking we have it. America, land of the free and home of the brave. Well it doesn’t seem that way to me. America, land of the haves and home of the crooks. Now to see what in store for us, let’s hear from the muse of Economics, Mr. Nouriel Roubini. The media makes it seem that he was the only one to predict the economic crisis. Maybe it’s because he was the loudest but certainly not the only one. Anyone who is a behavior economist and understands history called this one. In fact I had written my white paper in 2007 on this exact topic, I just didn’t peg the exact date but neither did Mr. Roubini. However his prognosis for 2013 is called the perfect storm.

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Known for his generally dour outlook that helped him see the financial crisis before it hit in 2008, Roubini said the US, European nations and others have become adept enough at forestalling their problems that a true crisis won't hit until 2013.

But when it does, the effects are likely to be painful.

"My prediction for the perfect storm is not this year or next year but 2013, because everybody is kicking the can down the road," he said in a live interview. "We now have a problem in the US after the election if we don't resolve our fiscal problems. China is overheating...eventually it's going to have a hard landing."In the nearer term, Roubini sees slow but steady growth in the US, with gross domestic product likely to be a bit above 2 percent, with unemployment and housing continuing to hold back the economy.From there, recovery will be difficult as the government cuts spending and raises taxes to ease pressure from the bulging debt and deficit issues.

At the same time, euro zone periphery nations like Greece, Portugal and Spain will continue to wrestle with their own debt problems, and China will act to prevent inflation from getting out of control. Then the storm hits, he said. "I see every economy in the world trying to push their problems to the future," he said. "We start with private debt, public debt, supra-national debt—we're kicking the can down the road and eventually this is going to come to a head in 2013."

Weakening economic conditions will come together in 2013 and create a "perfect storm" of global weakness, economist Nouriel Roubini told CNBC.

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China's efforts to pull inflation back to the 5 or 6 percent range also will constrain growth and hit its trading partners, said Roubini, head of Roubini Global Economics."That implies lower commodities, lower exports from Europe to China, weaker global economic growth and a situation in which all advanced economies have weak economic growth," he said.Roubini refrained from any specific predictions about GDP or stock market levels, but said the damage will be widespread."If we don't have enough job creation there's not enough labor income. Therefore, there's not enough consumption and consumer companies are going to be depressed. Therefore, the recovery is going to remain weak," he said. "The markets are expecting now a robust recovery in the second half of the year. I think the recovery is going to disappoint on the downside.“

As Roubini notes, the perfect storm happens only if America lets it. We can stop kicking our can down the road but not with the current political climate. We do not need conservatives, liberals or tea parties in Congress. We need people that have our ideals, pragmatic and a little left of the middle. People that see economic benefit for all Americans. People that understand the need for regulations and regulators. People that are smart enough to realize that no one can self regulate. The temptation is too strong to regulate only what is good for me.

Once we stop our mess, we can stand up to China and pass an international law that currencies float with one another and the countries that try to keep their currencies below market will pay by other countries imposing a surcharge on their goods when they come to market.

Finally, we can work with German Chancellor Merkel to save the Euro, not by giving funds but by providing motivation and reassurance.

The past is gone, the future is uncertain, all we is today, that’s why we call it the present