ALI VELSHI, CNN HOST, YOUR MONET: As Europe’s debt crisis worsens stocks here at home are getting flat. Welcome to YOUR MONEY, I’m Ali Velshi.
CHRISTINE ROMANS, CNN HOST, YOUR MONEY: I’m Christine Romans, from the New York Stock Exchange. The one soaring stock market took a beating this week, is this fear a natural correction? Ali, what is with behind all of this volatility, I mean 500 points on the Dow, when you look at how quickly this correction has happened from those levels in April, it’s really quite stunning. And also Ali, a good point to make, especially toward the end of the week, it’s no one thing, it’s a lot of different fears and uncertainties, all feeding together to hit bonds, to hit stocks, to move currencies wildly even commodities.
VELSHI: Yes, even hit gold. And I think this is one of those instances where investors have run for the hills and traders are now dominating this market. We’re seeing a lot of volume; we’re seeing a lot of volatility. Let’s bring in our good friend Richard Quest, he is the host of CNNI’s “Quest means Business” and spends a lot of his time covering what is going on in Europe. Richard we talked to you a couple of weeks ago we thought that the Central banks and European governments had done something to try and calm markets and that seemed to last for about a day.
RICHARD QUEST, CNNI HOST, “QUEST MEANS BUISNESS:” Barely even that and that only lasted a couple of days. The reality is it’s all about risk, it’s all about what is unsovereign debt and it’s all about worries about whether or not the anemic recovery around the world has legs. Are we heading toward a double dip recession? What some believe is the second leg of a crisis. And that is really the environment. Now I know, Ali, it won’t be long until Europe will point out that the Dow has had a very strong rally up and this might be just a correction. But it also might be a fissure; it might be something more serious. And the truth of the matter is at this point Ali no one can really say.
VELSHI: All right. The three of us can talk endlessly about markets but that is one component of the economy, so I want to bring in New York University’s famous professor of economics Nouriel Roubini, who looks not just at markets, but the entire economic situation, he’s the author of a book called “Crisis Economics,” the author of several books, Nouriel thank you for being with us.
Give me your sense of what Richard eluded to, the idea that our economic recovery, our nation’s economic recovery might be at risk? Some people call it double dip recession. What does this market activity tell us about what might be happening in the coming months and weeks and years?
NOURIEL ROUBINI, AUTHOR, “CRISIS ECONOMICS:” Well the market volatility in my view signifies that there are significant economic risks in this global economy. As my book points out, financial crisis that starts from excessive debt and leverage from the household section, leave in a second stage to a second leg where there is a releveraging of the public sector, with large accumulation of public debt, because we need the fiscal stimulus to get out of the recession. Because we decided to socialize with losses that put the losses of the financial system now on the backs of the government.
So one thing is happening is the rising sovereign race, it’s not just Greece, Greece is just a tip of an ice burg, it’s the UK, it’s Japan, it’s the United States where run away fiscal debt through out the advance economies and the market are getting nervous about that. So we’re probably in the Euro zone, and problems of a slow down of growth now in China, the signal, there’s also weakness in the United States, I expect the U.S. economy growth is going to slow down towards less than 2 percent toward the second half of the year when the fiscal stimulus becomes a drive on the economic growth. So there are a number of market economic downsides and that’s what the markets are pricing today.
ROMANS: And after such a big run up in so many of the markets, they were priced for perfection, they were priced for a global recovery that would be without a hitch. And as you point out, sometimes the medicine you take to fix the first problem causes another set of problems down the road and many people have been warning about that for some time, so what happens here, is this just a correction for stock markets and other commodities and other things quite frankly? Or what does a correction turn into a new bear market?
ROUBINI: In my view, it could be more than a correction; we might be headed towards a bear market for a number of reasons. First of all, there’s a risk meaningfully of a double dip recession in the Euro zone, growth in the Euro zone was going to be less than 1 percent, before the shock of Greece, now Greece and Portugal and consumer confidence and investor confidence, the economies in the Euro zone are going to slow down
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