Dr. Doom: Trump is the biggest risk in the world

Roubini: Trump is 'semi-failing'
Roubini: Trump is 'semi-failing'

Nouriel Roubini, the man who called the 2008 financial crisis, fears Wall Street is badly underestimating the negatives lurking beneath President Trump's agenda.

In fact, Roubini, whose dark predictions have given him the nickname "Dr. Doom," believes Trump and his policies have vaulted to the top of the list of risks threatening the global economy.

Last year, the biggest concern was a "hard landing" in China that dragged the rest of the world down along with it. Before that, the top danger was thought to be a collapse of the eurozone.

"Now, the biggest elephant in the room is the United States," Roubini told CNNMoney's Cristina Alesci this week from the sidelines of the Milken Global Conference in Beverly Hills, California.

Roubini argued that the "biggest uncertainty in the world and biggest tail risk comes from the economic, foreign and security policies of the Trump administration."

The New York University professor explained that because the US is the world's biggest economy, the consequences of a "severe policy mistake" can be enormous.

Recall that the 2008 global financial crisis that Roubini predicted began in the U.S. and quickly rippled across the planet, causing damage to economies far away from Wall Street.

trump roubini

Related: Reminder: Tax cuts don't make the economy soar

Of course, Wall Street doesn't seem very worried at the moment. Trump's promises to slash taxes, rip up regulation and spend on infrastructure have helped carry the S&P 500 11.6% since the election. CNNMoney's Fear & Greed Index is sitting comfortably in "neutral" territory.

Another measure of fear, the VIX (VIX) volatility index, plummeted this week to just 9.9, the lowest level since February 2007. By comparison, the VIX surged to nearly 90 during the 2008 financial crisis and hit 53 in August 2015 amid fears about China's economic slowdown.

"Markets are overestimating the positives and underestimating the negatives" from Trump's policies, Roubini told CNNMoney.

Ben Bernanke, the former Federal Reserve chief, also suggested investors may be overly optimistic. He told CNBC this week that Trump's goal of 3% growth is a "pretty long shot," adding, "we're in a slow-growth world now."

Roubini, who slammed the Trump administration as "incompetent," pointed to several specific risks: protectionist policy sparks a trade war; closing borders makes it hard to attract skilled talent from overseas; dramatic tax cuts blow up the US deficit.

Dr. Doom warned that Trump's tax plan, which he called a "joke," could actually worsen America's income inequality problem. Roubini, a big skeptic of "trickle-down supply side" economics, pointed to how big tax cuts didn't work to boost the economy or help blue-collar workers under President George W. Bush.

"We don't need more tax cuts for the rich and the corporate. That's actually going to make the economy worse," Roubini said.

Related: Bernanke calls Trump's 3% growth goal a 'long shot'

Independent analysts warn that Trump's tax plan would dramatically drive up the US deficit. The Committee for a Responsible Federal Budget recently estimated that Trump's proposal could cost $5.5 trillion in lost revenue during the first decade.

Roubini argued that blowing up the US deficit could hurt Trump's core supporters the most.

Here's how: concerns about Washington's ability to pay back debt could cause interest rates to rise rapidly, lifting the US dollar in the process. A stronger dollar would make American manufacturers less competitive by making US exports more expensive for overseas customers.

That would "hurt the white, blue-collar manufacturing workers who voted for Trump," Roubini said.

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