Nouriel Roubini, Professor Emeritus of Economics at New York University’s Stern School of Business, is Chief Economist at Atlas Capital Team, CEO of Roubini Macro Associates, Co-Founder of TheBoomBust.com, and author of MegaThreats: Ten Dangerous Trends That Imperil Our Future, and How to Survive Them (Little, Brown and Company, 2022). He is a former senior economist for international affairs in the White House’s Council of Economic Advisers during the Clinton Administration and has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank. His website is NourielRoubini.com, and he is the host of NourielToday.com.
NEW YORK – Greece’s fiscal problems are, as I have argued many times, but the tip of a global iceberg. For the next installment of the recent global financial crisis will be rising sovereign risk, especially in advanced economies that run massive budget deficits and accumulate large stocks of public debt as they socialize private financial losses in order to revive economic growth.
Indeed, history suggests that severe recession and socialization of private losses often lead to an unsustainable build-up of public debt. Moreover, financial crises triggered by excessive debt and leverage in the private sector are followed after a few years by sovereign defaults and/or high inflation to wipe out the real value of public debts.
Greece is also the canary in the coal mine for the euro zone, where all the PIIGS economies (Portugal, Italy, Ireland, Greece, and Spain) suffer from the twin problems of public-debt sustainability and external-debt sustainability. Euro accession and bull-market “convergence trades” pushed bond yields in these countries toward the level of German bunds, with the ensuing credit boom supporting excessive consumption growth.
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