Nouriel Roubini Tells Fox Business Network, U.S. Economy Is Unsustainable

RGE President Nouriel Roubini told FOX Business Network’s (FBN) Neil Cavuto that the US deficit is unsustainable, that there’s a need for the VAT tax, and that the implicit bill is huge. Roubini, who has been called Dr. Doom because of his bearish predictions, was one of the first voices of warning about a bubble in the U.S. housing market. Here are some key excerpts from the conversation. On Greece being the tip of the iceberg: “In my view what is happening in Greece is just the tip of an iceberg. With private debt in many parts of the world, we socialize these private losses. Now with large budget deficits in Europe, in Japan, in the United States. The bond market vigilantes have woken up in Greece, in Portugal, in Spain. At some point they're going to wake up in the U.K., in Japan, in the United States. We're running a 3.5 budget deficit. It is obviously over time not sustainable.” On why there has not been any market discipline: “The Fed has near zero rates. There is low growth. There is still deflation. So for a number of reasons, interest rates are still low. That is why there is no market discipline. This is unsustainable. There is going to be market pressure and we will be forced to do the tough adjustments.” On how the US fiscal problems will cause high inflation: “In a country like the U.S. where you can monetize the budget deficit, run the printing presses, monetizing the fiscal deficit eventually leads to inflation. So we're not going to have a default in the United States, that is not the option on the table. But we could have high inflation if we don't fix our fiscal problems.” On possible riots in the US: “Well, we have a social safety net that means that unemployed people and poor people get some income, so you're not having so far riots in the streets.” On the implicit debt being huge: “You have a federal deficit problem. A state and local problem. You have unfunded liabilities of Medicare, Social Security. And you have also unfunded liabilities of state and local government pension funds. You add it all together between the official debt, the implicit one, the bill is huge.” On the need to raise non-distortional revenues: “The official numbers suggest about $9 trillion budget deficits for the next decade. Even with reasonable assumption about economic growth, at some point we have to reduce spending, we have also raise some kind of non-distortional revenues.” On Governor Christie’s plan to cut spending: “If I had to make a choice at the margin, it is better to cut the budget deficit on the spending side…the size of the deficit is such that realistically the two parties will have to accept -- the Democrats, spending cuts, and also the Republicans will have to realize that some increase in revenues, want to limit as much as possible, is going to be needed to shrink over time, this deficit.” On the need for a VAT tax: "That is why we have to cut the fat of the government first. We have to reduce the inefficiencies.” “Realistically down the line we'll have to raise revenues. In my view, there are less distortional ways of raising revenue. We don't want to increase income taxes, capital gains, dividends, and other things of this sort. Probably introducing down the line a value-added tax, it's less distortionary, an indirect (ph) tax will be the right way of doing it over time…we have to fill this gap.”