Nouriel Roubini, professor of economics at New York University’s Stern School of Business and CEO of Roubini Macro Associates, joined Yahoo Finance Live to explain Bitcoin and its prospects for the economy.
ADAM SHAPIRO: 3.7 million permanent job losses due to the pandemic – that’s data from the Bureau of Labor Statistics today. Yesterday we heard this problem of a liquidity trap, that interest rates are so low and savings are so much higher right now that what the Fed is doing may not work. Powell said no it works. What do you think?
NOURIEL ROUBINI: Well, you know, the Fed has made its own contribution, but even the Fed believes that monetary policy options are limited and that the stimulus should come from fiscal policy as we are running out of money balls. And the money side not only stimulates the real economy, but also asset prices. We’re talking about the shape of the recovery, whether it’s a V or a U or a W. It is certainly what most people call a K, because those who have stable jobs, employees, and financial assets now have jobs, incomes, and their financial assets, as well as their equity, are increasing in value.
Suppose you are permanently unemployed, underemployed, or at risk of losing your job. You are also one of those people who have almost no financial wealth. To take just one number, 85% of all stock assets in the United States are owned by the top 10% of households. 51% of these are held by the top 1% of households. The bottom 50% of households have almost no equity, 0.5%. And the top 60 billionaires in the United States are more wealthy than the bottom 50% of the 160 million population.
So this is a K-shaped recovery. Those who have incomes and assets are fine. Those who are fragile and have no income or have no jobs or have fragile jobs and have no financial assets are in great trouble. We are a very divided society between belongings and winners and losers and that is why there is so much social unrest.
– – Nouriel, I would like to talk about markets for a second and also about different asset classes. One that has received a lot of attention lately – Bitcoin. And the price I see now is over $ 15,378 for a single bitcoin. How do you rate cryptocurrency and where – you know, a lot of people who are pretty optimistic these days?
NOURIEL ROUBINI: First, I pointed out that cryptocurrency is a misnomer, because for something to be a currency, you have to be a unit of account. Nothing is fixed in Bitcoin or any other cryptocurrency. They have to be a single counter, and with that many tokens, you don’t have a single counter. They have to be a scalable means of payment, and with Bitcoin you can only make five transactions per second. You can make 25,000 with a Visa network. And you have to be a stable store of value that is not very volatile.
Based on the first criteria, Bitcoin is not a currency. It is perhaps part of the store of value because, unlike thousands of others whom I call shitcoins, it cannot be devalued so easily because there is at least one algorithm that decides how much the supply of Bitcoin will increase over time because, for most of the others, these are literally being done on an ad hoc basis and they are being dismantled faster than what the Fed is doing.
What does the future of this asset class look like? In my view, it’s not scalable, not secure, not decentralized, not a currency, and remember that many central banks, starting with the Chinese, the Swedish, but even the Eurozone, are starting to think about creating a digital currency of the Central bank. Once you have a central bank digital currency, anyone can use a central bank account to make payments.
So not only do you not need crypto, you don’t even need Venmo. You don’t even need a bank account. You don’t even need the check. And the big revolution we’re going to see over the next three years will be the central bank’s digital currencies. They will supplant digital payment systems or the private sector, starting with cryptocurrencies that aren’t actually currencies.
SEANA SMITH: Nouriel, I mean, what you are saying now is going to have such a big impact. It’s pretty hard to wrap your head around it. But I just want to bring the conversation back to what we see in the markets today and what we saw this week because I think the market is responding to an uncertain choice – we are four days from election day. I think we still have no outcome or a better picture of who exactly will be in the White House.
But in the broader sense, I’m curious just to hear your opinion on the polls were wrong again. I think Trump’s coalition was much stronger than many expected. And that means that the country is so divided. I am just curious what risk you think this could pose to the economy and what risk it could pose to the market here in the next few years.
NOURIEL ROUBINI: You know, a week before the election, I wrote an article that said the polls were most likely wrong, that there would be a narrow margin, and therefore that there will be a high level of contestation on this election. By the way, we’re going to see how much Trump will accept the results instead of taking legal action first and then legal action and maybe even unleashing his proud boys on the streets trying to create chaos. So if that happened I would expect a severe one by the way [INAUDIBLE] Episode would occur if we were going towards civil unrest, if not violence, and I’m not ruling it out. It’s not my baseline, but I’m not ruling it out.
But I think the election results suggest that we are a very, very divided society. And we will be in a situation where we are stuck because of the divided government. I would have preferred a political system in which the winner has all the power and the party that wins for four years, like parliamentary systems in Europe, can do what they want. And if they do the right thing, they will be re-elected, and if they don’t do the right thing, their power will be taken away.
In the US we have the worst of all systems because we divided the government. We have a situation where it will take you 60 votes in the Senate to get something passed unless you do the reconciliation and even if you win the White House. then you can’t have your agenda. That’s what happened to Trump when you had a majority in the House as Democrats. And that is exactly what is likely to happen now, if Biden wins and you have a Republican majority in the Senate.
This kind of standstill makes no sense because regardless of your views, if you are in power you will need to carry out structural reforms. You have to take political action one way or the other. And this deadlock is like throwing the can down, running bigger budget deficits, not choosing spending cuts, not choosing tax increases, and we have huge deficits. We monetize them, and we are effective in the helicopter drop-of-money policy, what people call MMT, which can ultimately lead to inflation spikes, if not stagflation.
This standstill – the market will recover in the short term – is enthusiastic about it. But you think about it. Another two year stalemate in 14th place for the economy is not good for the economy, in my view, and it will not be good for the market either.
SEANA SMITH: Adam, you are muted.
ADAM SHAPIRO: So you don’t see a President Biden and Senate chairman McConnell actually forging a deal in 2021 for an incentive greater than the $ 300 billion Republicans proposed but less than the $ 2 trillion Democrats proposed wanted to?
NOURIEL ROUBINI: Well, I don’t see it for the following reason. If you’re a Republican and you’ve just lost the White House, what’s your interest? Their interest is to ensure that the economy is weak, that Biden is a president who can do nothing but orders from the executive that is being challenged in court. And if the economy is weak two years from now in 2022, then the money will stop with the president. And the Republican will say, look, the economy has been mediocre and you don’t vote for the Democrats.
Why would they want to give the Democrats a $ 2 trillion or even $ 1.5 incentive? It will boost the economy, boost jobs, and keep the Democrats looking good in 2022. From a purely partisan standpoint, you want them to fail, right?
That is exactly what happened to Obama. When Obama came to power, there wasn’t a single Republican who voted in favor of this incentive in early 2009, despite the deepest recession during the global financial crisis. I think we are so divided, we are so partisan, that I don’t see any chance of being bipartisan.
Yes there will be a stimulus. It doesn’t matter whether it is $ 300 billion or $ 500 billion. It has to be well over a trillion to make a difference. I don’t see these Republicans, least of all Trump, as a lame duck.
– – You know, Nouriel, when you talk about the division that is going on here within our own confines, I sometimes think that we don’t necessarily need to think about what else is going on globally. And I know you are someone who looks out into the global landscape and you always come with – you usually come out with some sort of your white swans. I know you wrote that earlier this year, the white swans are taking place. What is happening outside of the US that we need to watch out for, and if we are internally divided, it could have serious consequences for our country?
NOURIEL ROUBINI: First of all, we are on the verge of a process that I call deglobalization. Everyone is becoming more protectionist. There will be deglobalization.
There will be decoupling within the US and China. Will be a fragmentation of the world economy. Investments from China and Asia are being shifted to costly sources of production that reduce potential growth and increase production costs. This increases the risk of stagflation.
The second, unfortunately, I think, is that we are at the beginning of a Cold War between the US and China, which have a completely different economic, political and social system. And so this decoupling starts first in technology, then in commerce, then in financial flows, then in investments, then in data, then in information, then in the mobility of scientists and students, and so on and so forth. And it will be a world divided in two, one by the US and the west and one by China. These will be two different economic, trade, financial, political and geopolitical systems. That too is not good for the global economy.
And things could get worse between the US and China. The Cold War could get colder, and some people are even warning of a situation where perhaps even military conflict down the line could be extreme [INAUDIBLE] Event that could occur in Taiwan or the South China Sea. There are of course many other things that can go wrong globally.
SEANA SMITH: Nouriel Roubini, we really appreciate your time. We love your honesty. We love what you had to say. We look forward to having you back in our program soon. Thank you for taking the time.
NOURIEL ROUBINI: Thanks for the invitation. Pleasure.