Economist Nouriel Roubini says Bitcoin is a 'gigantic speculative bubble' — here's how he thinks the crypto-craze will finally end
Roubini, Professor of Economics and International Business of
Leonard N. Stern School of Business.
LONDON – Nouriel Roubini, who gained fame after predicting the 2008 financial crisis, is living up to his Dr. Doom nickname when it comes to cryptocurrencies.
Bitcoin, he said in conversation with Business Insider Poland, will be regulated to the extent that it will "find its end." In the wide-ranging interview, which covered everything from the prospects of another financial crisis to the fallout from Brexit, Roubini struck a generally upbeat tone. Business Insider Poland was one of the few who talked to the professor during his visit to Poland at the invitation of Bank Pekao.
Here's the full transcript: Damian Szymański, Business Insider Poland: Dr. Doom seems to be in a great mood. Should we be afraid? What kind of news have you brought to Warsaw? Good or bad?
Nouriel Roubini: I’m rather Mr. Realist than Dr. Doom (laughs). However, when certain financial turbulences started, I was the first one to talk about it, and loudly. Hence the nickname. But economists always have to weight their reasons, check the risks, summarize pros and cons, and sometimes – warn. It’s a tough business. But when it comes to Poland, I don’t have bad news.
BI: Our country is in the middle of the cyclical boom. The economy is flowering.
Roubini: Well, one has to agree with that. Since the transformation, Poland’s economy has been developing at the pace of about 4% per year. The World Bank, the International Monetary Fund, and the rating agencies – all forecast that you would continue to grow at a 3.5 – 4.5% rate. The potential growth could be even higher. Yet, you face a very serious challenge.
Roubini: Just listen to this. When you are an underdeveloped country, in order to record incredible growth it’s enough to accumulate capital and to have labor. However, when you reach a medium development stage, it’s not so easy to reach the advanced country level. It requires more innovations, investments, labor efficiency, productivity, R&D spending. This is much more difficult to implement and needs wise and responsible economic policy.
BI: And what’s the good news?
Roubini: In my opinion, with the 4% GDP growth, in five to 10 years you can come closer to high-income countries. And this is quite a good prospect.
BI: Talking about prospects - do you agree with the World Bank that, while listing key threats to Poland in the near future, has mentioned the lack of highly qualified labor?
Roubini: I’m not surprised. Poland has recently lowered the retirement age; the whole Europe faces struggles with aging society-related problems. In addition, a lot of people left Poland. But I have to stress that if you keep investing in people, their education and, at the same time, when your economy continues to grow, a lot of migrants may come back to Poland. We have to remember that people love their motherlands. If they realize they also offer good living, they will come back.
BI: They will come back provided there won’t be a similar crash as in 2008. If you succeeded to forecast the biggest crash in the global economy since the Great Depression of the 1920s, I have to ask you this particular question: does the world faces the similar fate right now? Do you notice any symptoms of the upcoming crisis?
Roubini: I don’t see similar threats for next one-and-a-half to two years. But in a long-term, there will be some kind of crisis, that’s certain. But whether it’s going to be in the US, China or Japan, we don’t know. Will its reach be global or local? We don’t know it either. But one has to remember that a crisis is not something unpredictable, like an earthquake. All crises build up - gradually, step by step. We keep climbing, higher and higher until we reach the final point. And that – Bam! We have a crash.
BI: So, right now, are we in the middle of this road toward the peak? Or do we just start climbing?
Roubini: There are certain spots in the US over-leveraged enterprise sector that can cause trouble. The non-bank financial sector or rising government debt is also worrying, but for now, I don’t see the crash approaching. But the situation needs careful monitoring. The debt has to be spent on investment, not consumption – this is the only way to avoid another financial crisis.
BI: Are you telling me that we’ve learned something from 2008 experience?
Roubini: There is a very distinctive change in a banking sector, both in the US and Europe. Earlier, we had to face high leverage, elevated risk or lack of liquidity. Since then, a lot of solutions have been launched to make the banking sector more stable. The improvement is obvious. However, there are still some banks, especially on fringes of the Eurozone, that need their balance sheets being put into order, especially due to bad loans. We need consolidation and more efficient management.
BI: Do you mean Italy?
Roubini: Not only. Greece or some Spanish banks are still plagued by bad loans. But I have to emphasize that in principle the whole sector looks much better. Everything moves in the right direction.
BI: Right now you sound like an optimist. Recently Torsten Slok, chief economist at Deutsche Bank, has said that the bond market with negative yields means an enormous bubble with the size of some eight billion dollars. Don’t you see some risks here?
Roubini: The global economy keeps growing, the inflation rate is still low, and central banks slowly depart from their unconventional, extra-easy monetary policy. Investors buy risk and their attitude toward the risk is optimistic. So, right now I don’t see any major threats. But if there is a fast increase in the bond yields, maybe we will see some major correction on the stock market. But I don’t quite believe it.
BI: Why not?
Roubini: Because of fundamental reasons. Globally, there are a lot of savings, but not much investment spending. The markets are also helped by the already-mentioned super-easy policy of the central banks that kept buying bonds and cut bond yields to below zero level. Of course, that does not mean that the banks can sleep peacefully. They need to normalize their actions in a prudent way, in order to adjust to the market expectations.
BI: Last week Mario Draghi, at one of the most important meetings held this year, said that the strong euro and global turbulences are the only threats Europe faces.
Roubini: It’s true that this year the euro got slightly stronger. But, in my opinion, we shouldn’t get too worried about the Euro exchange rate of below 1.2 or 1.15 against the US dollar. Also, the European Central Bank will not intend to strengthen the euro, because that would mean lower inflation, the European goods would become less competitive on global markets, which would upset the trade balance. And nobody wants that.
BI: But the potential growth of the Eurozone is still very low.
Roubini: That’s true. And this is why you need structural reforms – not only political but also the ones related to a banking union. You have to decide how close one can cooperate in the fiscal area. I know that you still debate on the subject, but gradually you should strive for the financial union that will make the Eurozone more stable. Of course, one should also consider some political risk – Italian elections, problems with Catalonia.
BI: Hard Brexit?
Roubini: At the beginning, the Brexit was to lead to the EU disintegrating. The same was thought after Donald Trump became the US President. In my opinion, the contrary happened. Because of the Brexit, you finally started to talk about joint actions against terrorism; such issues as joint defense, additional spending on infrastructure have emerged. Also, I can’t see the domino effect – the worries that other countries will follow the UK example.
BI: And aren’t you afraid of the rising protectionism? Look at Donald Trump’s words about the US leaving the NAFTA, freeze on the TTIP talks, accusing China of currency manipulations?
Roubini: These are truly serious threats. Some people see the free trade as a reason of unequal distribution of goods. In other words, some companies lose their income, some people lose their jobs, and protectionism is seen as a good solution to these problems. So, the US moves toward the increased protectionism, but we don’t know what shape it will take – hard or soft. The issue is still open.
BI: Do you think it’s a right way?
Roubini: No, I don’t. At the end of the day, protectionism always leads to higher prices for goods in the particular country, hits a consumer and does little to protect jobs or companies. In my opinion, in the future new technologies rather than free trade or migration will be a much more disruptive factor causing chaos in the labor market. I support free trade, but it should be beneficial for everybody, the whole society. If there are people who lost their jobs due to lowering of the trade barriers, they should get appropriate support and help; they should change the sector, implement new technologies. In other words, we should invest in people. You can’t just give them a job for some six months and then forget about them. This way, they will feel abandoned, neglected, rejected by globalization.
BI: Now you sound like the International Monetary Fund’s representatives. This year the organization sent a very clear message – it’s necessary to fight income inequalities because they destroy our potential and threaten the economic growth.
Roubini: Because that’s true. It’s high time to state it clearly and loudly – over last years the role of trade unions decreased, the companies went through all kinds of restructuring. Our world has changed. But this is a dangerous road. We have to invest in the social capital, in education. We have to give people strength and the feeling they are able to change something. There are countries without natural resources, like Japan, Singapore, Hong Kong. Why have they succeeded? Because they have invested in their people. This is the key to success. It’s not only about roads, infrastructure, and physical assets. No. First of all, one has to invest in people.
BI: Aren’t you scared by such technologies like blockchain? Because of it, human factor can be reduced to the minimum. And who benefits? The cryptocurrencies, like bitcoin that the CEO of JP Morgan, the largest investment bank in the world, already called the big fraud.
Roubini: First of all, I would separate the blockchain from the bitcoin. Blockchain creates an enormous chance to increase productivity in many companies and I think the technology to be something very good. But the bitcoin and other cryptocurrencies – this is something entirely different. In my opinion, there is a gigantic speculative bubble related to the bitcoin.
Roubini: Because this is neither a serious method of payment nor a good way to store capital. The bitcoin feeds on itself. There are no fundamental reasons for its price to reach such levels. What’s more – it is also used by criminals, for their shady business. I think that more and more countries will start to make cryptocurrency exchanges illegal like China did. New regulations will be adopted. So, this will find its end.
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Read the original article on Business Insider Polska. This story originally appeared on Business Insider Polska and has been translated from Polish. Copyright 2017. Follow Business Insider Polska on Twitter.
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