GO
Loading...

Enter multiple symbols separated by commas

US Will ‘Soon Get Messy’ Again: Roubini

Nouriel Roubini, chairman and co-founder of Roubini Global Economics
Simon Dawson | Bloomberg via Getty Images
Nouriel Roubini, chairman and co-founder of Roubini Global Economics

The eleventh hour deal reached to avert the fiscal cliff in the U.S. merely masks the bleak long-term outlook for the country, Nouriel Roubini said in an opinion piece published in the Financial Times newspaper on Thursday.

Roubini, who is chairman of Roubini Global Economics and has been dubbed "Dr Doom" for his gloomy economic forecasts, said in the piece that the deal manages to stave off the debt issue temporarily rather than resolve it while another serious battle over raising the debt ceiling looms.

(Read more: Key Points in Bill Passed by Congress to Avert US 'Fiscal Cliff')

At the end of February, the U.S. government will reach its debt limit and an agreement is needed between Republicans and Democrats for an increase to the debt ceiling.

Roubini said in the article: "It won't be long before there is another crisis. Two months, in fact."

"That is only the beginning later in 2013 a bigger debate on medium-term fiscal consolidation will begin."

He added that "a big fight about entitlements should be expected as well as a series of little fights over tax reforms" and the whole process will likely "soon get messy."

(Read more: Market Rally Totally Misplaced; Scary February Ahead: Strategist)

The sticking point is likely to be intended tax rises. Roubini says President Barack Obama will argue that the New Year's Day deal raises only a small amount and that there is room for further tax rises, for the wealthy at least. On the other hand, Republicans will argue that spending should be radically cut.

In the piece, Roubini said the fiscal adjustment would translate as a drag on the economy during the year, warning "the U.S. could quite easily come perilously close to stall speed this year" or worse if the euro zone begins to unravel once again.

He goes further to argue the longer term is likely to be much worse than any short term woes.

"Neither Democrats nor Republicans recognize that maintaining a basic welfare state… implies higher taxes for the middle class as well as for the rich," Roubini writes.

He goes on to argue that President Obama has scored a "pyrrhic victory" and is being helped by the financial markets.

"It will probably take years for the U.S. to confront the reality of its fiscal position … Large fiscal deficits will remain the norm for the next few years at least as long as the bond market remains quiet, as I believe it will," Roubini said.

He said that the appearance of bond vigilantes was inevitable but eventually they would "wake up."

"The 'mini deal' on the fiscal cliff dodged all the important questions. By not including the spending cuts in the deal, the Democrats have emboldened Republicans. It is again up to Washington's policy makers to fix the problem before the market does it for them," he wrote, warning that this would not happen "with any ease."


Contact U.S. News

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    Please choose a subscription

    Please enter a valid email address
    To learn more about how we use your information,
    please read our Privacy Policy.

Don't Miss

  • Mark Cuban and Donald Trump

    Donald Trump appears to have Mark Cuban's vote, at least in terms of how the billionaire real estate mogul is conducting his political campaign.

  • Ferrari 488 Spider

    Ferrari's new 488 Spider will have a V-8 turbo engine and a retractable hard-top roof that lowers in just 14 seconds.

  • Members of the New Horizons science team react to seeing the spacecraft's last and sharpest image of Pluto before closest approach later in the day at the Johns Hopkins University Applied Physics Laboratory (APL) in Laurel, Maryland July 14, 2015.More than nine years after its launch, a U.S. spacecraft sailed past Pluto on Tuesday, capping a 3 billion mile (4.88 billion km) journey to the solar system's farthest reaches, NASA said.

    The New Horizons Pluto flyby mission set records for NASA's social media and web metrics——but why do we care so much?

U.S. Video

  • Wall Street awaits Fed, snaps losing streak

    The stock market has broken its five-session losing streak, but the fate of today's trading will likely rest in the hands of the Fed, which releases its post-meeting policy statement this afternoon.

  • Delivering Alpha unfiltered: Global Opportunity

    Complete video of Andrew Ross Sorkin's panel on how to navigate the wide array of global investment challenges that investors face featuring Chris Ailman, Mary Callahan Erdoes, Eric Mindich and Richard Perry.

  • Cramer: Signs point to another rally

    Mad Money host Jim Cramer shares his view of the market rally in Tuesday's trading session. Finally we have a good setup, he says.