Nouriel Roubini, professor of economics at New York University's Stern School of Business and CEO of Roubini Macro Associates, joined Yahoo Finance Live to give his take on Bitcoin and his outlook for the economy.
ADAM SHAPIRO: 3.7 million permanent job losses because of the pandemic-- that's the data today from Bureau of Labor Statistics. Yesterday, we heard this issue of a liquidity trap that interest rates are so low and savings are so much higher right now that what the Fed is doing may not be working. Powell said, no, it's working. What do you think?
NOURIEL ROUBINI: Well, you know, the Fed has done its own share, but even the Fed believes that there are limits to what monetary policy can do and that the stimulus should be coming from fiscal policy because we are running out of bullets on the monetary. And the monetary side, more than stimulating the real economy, is stimulating asset prices. We're talking about the shape of the recovery, whether it is a V or a U or a W. It is certainly what that most people call a K, because those who have stable jobs, white collar, and have financial assets now have jobs, have income, and their financial assets, like their equity wealth, is going up in value.
But suppose that you are permanently unemployed or you're underemployed or you're at risk of losing job, you're also among the people that has almost no financial wealth. Just to give a number, 85% of all equity wealth in the United States is held by the top 10% of households. 51% of it is held by the top 1% of households. The bottom 50% of households has almost zero equity wealth, 0.5%. And the top 60 billionaires in United States have more wealth than the bottom 50% of the population that is 160 million people.
So this is a K-shaped recovery. Those who have income and have assets are doing well. Those who are fragile and don't have income or don't have jobs or have fragile jobs and don't have financial assets are in deep trouble. We're a very divided society between haves and have nots, between winners and losers, and that's why there is so much social unrest.
- Nouriel, I do want to talk about markets for a second and also different asset classes. One in particular that is getting a lot of attention lately-- Bitcoin. And the price I'm looking at now, it's above $15,378 for a single Bitcoin. What is your view of the cryptocurrency and where-- you know, a lot of folks who are pretty bullish on it these days?
NOURIEL ROUBINI: Well, first of all, I have pointed out that cryptocurrency is a misnomer, because for something to be a currency, you have to be a unit of account. Nothing is priced in Bitcoin or any other cryptocurrency. You have to be a single numerator, and with so many tokens, you don't have a single numerator. You have to be a scalable means of payment, and with Bitcoin, you can make only five transaction per seconds. With a Visa Network, you can make 25,000. And you have to be a stable store of value that is not very volatile.
Now, based on the first few criteria, Bitcoin is not a currency. It's maybe a partial store of value, because, unlike thousands of other what I call shitcoins, it cannot be so easily debased because there is at least an algorithm that decides how much the supply of Bitcoin raises over time, because for most of those other ones, literally, is done ad hoc, and they're being debased faster than what the Fed is doing.
So what's the future of this asset class? In my view, is not scalable, is not secure, is not decentralized, is not a currency, and remember, many central banks, starting now with the Chinese one, the Swedish, but even the eurozone, are starting to think about creating a central bank digital currency. Once you have a central bank digital currency, every individual can use an account with the central bank to do payments.
So not only you don't need crypto, you don't even need Venmo. You don't even need a bank account. You don't even need the check. And the big revolution we're gonna see in the next three years is gonna be central bank digital currencies. They're gonna be crowding out digital payment systems, or in private sector, starting with cryptocurrencies that are not really currencies.
SEANA SMITH: Nouriel, I mean, what you're saying now will have such broad implications. It's kind of hard to wrap your head around that. But I just want to bring the conversation back to what we're seeing in the markets play out today and what we've seen this week, because I think the market's reaction to an uncertain election-- we're four days since Election Day. We still don't have an outcome or a better picture, I think, of who exactly is going to be in the White House.
But more broadly speaking, I'm curious just to get your take on the fact that the polls were wrong once again. I think Trump's coalition provided to be much stronger than many had anticipated. And that leads to the fact that the country is so divided. I'm just curious just what kind of risk you think this might bring to the economy and what risk it could bring to the market here over the next couple of years?
NOURIEL ROUBINI: Well, you know, a week before the election, I wrote a piece saying that the polls were most likely wrong, that there'd be a narrow margin, and that therefore there'll be a high contestation of this election. And we'll see, by the way, how much Trump is gonna accept the results as opposed to start first legal action and then court action and maybe even unleash his Proud Boys in the streets trying to create chaos. So if that were to happen, by the way, I would expect that a severe [INAUDIBLE] episode would occur if we are going in direction of civil unrest, if not violence, and I don't rule it out. It's not my baseline, but it's one I'm not ruling out.
But I think the results of the election suggest that we are a very, very divided society. And we are going to be in a situation in which, because of divided government, we have gridlock. I would rather have a political system where the winner has all the power and the party that wins for four years, like parliamentarian systems in Europe, they can do what they want. And if they do the right thing, they get re-elected, and if they don't do the right thing, they're booted out of power.
In the US, we have the worst of all system because we have divided government, we have a situation in which you need 60 votes in the Senate in order to pass anything unless you do the reconciliation, and even if you win the White House, then you cannot have your agenda. That's what happened to Trump when you had the majority in the House being Democrat. And that's what likely to happen right now if Biden wins and you're going to have a majority in the Senate being Republican.
This kind of a gridlock doesn't make sense because, whatever your views are, if you're in power, you have to do structural reforms. You have to take policy actions in one direction or another. And this gridlock is like kicking the can down the road, running larger budget deficits, not deciding to cut spending, not deciding to raise taxes, and we have huge deficits. We are monetizing them, and we're effectively in helicopter drop of money policies, what people call MMT, that eventually may lead to a rise in inflation, if not stagflation.
So this gridlock-- in the short run, the market rallies, is excited about it. But you think about it. Having gridlock for another two years in 14th place for the economy is not good for the economy and is not gonna be good for the market, in my view.
SEANA SMITH: Adam, you're muted.
ADAM SHAPIRO: So in 2021, you don't see a President Biden and a Senate Leader McConnell actually forging some kind of deal for some kind of stimulus greater than the $300 billion the Republicans were proposing, but less than the $2 trillion the Democrats wanted?
NOURIEL ROUBINI: Well, I don't see it for the following reason. If you're a Republican and you just lost the White House, what's your interest? Your interest is to make sure that the economy is weak, that Biden is a president that cannot do anything but by executive order that are gonna be challenged in the courts. And then, if the economy is weak two years from now in 2022, then the buck stops with the president. And the Republican'll say, look, the economy was mediocre, and don't vote for the Democrats.
Why would they want to give a $2 trillion stimulus or even $1.5 to the Democrats? It's gonna boost the economy, it's gonna boost jobs, and it's gonna make the Democrats look good in 2022. From a purely partisan point of view, you want them to fail, right?
That's what happened with Obama. When Obama came to power, there was not a single Republican who voted for that stimulus in early 2009 in spite of the fact they were in the deepest one of the recession during the global financial crisis. I think we're so divided, we're so partisan, that I don't see the chances of bipartisanship emerging.
Yes, there will be a stimulus. Whether it's gonna be $300 billion or $500 billion, it doesn't matter. It has to be well above a trillion to make a difference. I don't see these Republican going for it, certainly not Trump at this point, being lame duck.
- You know, Nouriel, when you talk about the division that we're seeing here play out within our own borders, I guess sometimes it could be we don't necessarily think beyond what else is going on globally. And I know, you're someone who does look out into the global landscape, and you always co-- you usually come out with kind of your white swans. I know that was something you wrote earlier this year, the white swans taking place. What is something happening beyond the US that we need to be paying attention to and, if we are divided internally, that could have some serious ramifications for our country?
NOURIEL ROUBINI: Well, first of all, we are on the verge of a process of what I call deglobalization. Everybody's gonna become more protectionist. There's gonna be deglobalization.
There'll be decoupling within US and China. Will be a fragmentation of the global economy. There'll be reshoring of investment from China and Asia to high-cost sources of production, stuff that reduces potential growth and increases the cost of production. It makes the risk of stagflation rising.
The second thing, I think, is, unfortunately, we're at the beginning of a Cold War between US and China that have a completely different economic, political, and social system. And therefore that decoupling is starting first in technology, then in trade, then in financial flows, then in investment, then in data, then in information, then in mobility of scholar and students, and so on and so on. And it's gonna be a world that is divided in two, one led by US and the West and the one by China. Those are gonna be two different economic, trading, financial, political, and geopolitical system. Again, that's not good for the global economy.
And things could get even worse between US and China. The Cold War could become colder, and some people even warning about a situation where maybe even a military conflict down the line could be the kind of a extreme [INAUDIBLE] event that might materialize on Taiwan or on the South China Sea. So there's plenty of other stuff, of course, that can go wrong globally.
SEANA SMITH: Nouriel Roubini, we really appreciate you taking the time. We love your honesty. We love what you had to say. We look forward to having you back on the program soon. Thanks so much for taking the time.
NOURIEL ROUBINI: Thanks for having me. Pleasure.