NYU's Roubini: U.S. Can't Run Massive Deficits Forever
Posted May 21st 2010 6:00PM by Joseph Lazzaro
Filed under: Forecasts, Financial Crisis

New York University Economics Professor Nouriel Roubini, who accurately predicted the subprime mortgage default-induced financial crisis more than a year before it hit, is now cautioning the U.S. to not assume that the next stage of the financial crisis cannot return to U.S. shores.

"Bond market vigilantes have already woken up in Greece, in Spain, in Portugal, in Ireland, in Iceland, and soon enough they could wake up in the U.K., in Japan, in the United States, if we keep on running very large fiscal deficits," Roubini told Blooomberg News. "The chances are, they are going to wake up in the United States in the next three years and say, 'this is unsustainable.' "

Roubini added that the record U.S. budget deficit might persist amid a stalemate in Washington in which Republicans block tax increases and Democrats prevent spending cuts.

Fiscal/Economic Analysis: No, the United States is not Greece or Spain, but to say that the debt servicing clock is not ticking for the U.S. would represent an act of supreme hubris and arrogance. Roubini is correct: Washington needs to wake up, and in a hurry. It must cut both social and defense spending -- we're spending more than $800 billion a year on defense -- and it must raise taxes. If Congress and the president don't act, they're going to make economist Roubini a brilliant forecaster for the second time in a decade.