“Our point is that this situation is one that is not a stable equilibrium, is not even a stable disequilibrium. It’s an unstable disequilibrium. Take for example the eurozone. You cannot have just a monetary union without banking, political, economic, fiscal union. Either you move towards more integration or you’re going to have more fragmentation and disintegration. So the situation we face right now in the global economy, same in the eurozone, is of a unstable disequilibrium, therefore a new abnormal, that cannot be sustained.”
The “New Abnormal” stems from the patchy, anemic recovery from the global financial crisis, Roubini explained, touching on the roots of the crisis:
“It’s been anemic because the financial crisis was one, first in which it was too much debt, leverage and excessive risk taking in the private sector, households, banks, financial institutions, even corporates. And now is the result of the resolution of financial crisis were the search of public debt and deficits. Historically, whenever you start with too much private and public debt, there is a painful period that can last over a decade, where growth is going to be anemic. Why? Because you have to spend less, to save more or dissave less to gradually reduce this tox of deficit and debt. And that implies that economic growth has been very weak in the United States, in Europe, in Japan and other advanced economies. And that’s going to continue. Eventually, that slow economic growth is associated with rising unemployment rate, and also with social and political unrest. That’s the situation we’re facing right now – is unstable disequilibrium, is the new abnormal. We’re ahead of decade of very low economic growth.”
An imperfect policy response has exacerbated the situation:
“In part we needed monetary easing, to try to avoid and prevent this Great Recession from becoming the Great Depression, but liquidity has been like a drug, a palliative, it doesn’t resolve the disease, you have to do fundamental, structural changes that’s going to increase the productivity. For example in Europe, if you don’t do them, liquidity just buys you time, but creates zombie firms, zombie households, zombie countries and governments.”
To see what Bremmer and Roubini had to say about global conditions, watch the interview at Charlie Rose.