The United States may fall victim to bond “vigilantes” targeting indebted nations from the United Kingdom to Japan in a potential second stage of the financial crisis, New York University professor Nouriel Roubini said.
“Bond market vigilantes have already woken up in Greece, in Spain, in Portugal, in Ireland, in Iceland, and soon enough they could wake up in the UK, in Japan, in the United States, if we keep on running very large fiscal deficits,” Roubini said at an event at the London School of Economics. “The chances are, they are going to wake up in the United States in the next three years and say, ‘this is unsustainable.'”
The euro has touched a four-year low against the dollar on concern nations with the largest budget deficits will struggle to meet the European Union’s austerity requirements. Roubini, speaking in a lecture hall packed with students who then queued to meet him at a book-signing, suggested that the public debt burden incurred after the banking panic of 2008 may now cause the financial crisis to metamorphose.
“There is now a massive re-leveraging of the public sector, with budget deficits on the order of 10 percent” of gross domestic product “in a number of countries,” Roubini said. “History would suggest that maybe this crisis is not really over. We just finished the first stage and there’s a risk of ending up in the second stage of this financial crisis.”
The US posted its largest April budget deficit on record as the excess of spending over revenue rose to $82.7 billion. The federal debt is currently projected to reach 90 percent of the economy by 2020.
Roubini, who predicted in 2006 that a financial crisis was imminent, said that the record US budget deficit may persist amid a stalemate in Congress between Republicans blocking tax increases and Democrats who oppose cuts in spending.
“In many advanced economies, the political will to do the right thing is constrained,” he said.
Roubini reiterated that the euro region faces the threat of a breakup after the Greek budget crisis. The European Union said on Tuesday it transferred the first instalment of emergency loans to Greece, one day before 8.5 billion euros ($10.4 billion) of bonds come due.
“Even today there is a risk of a breakup of the monetary union, the euro zone as well,” Roubini said.
“A double dip recession in the euro zone” is “something that’s not unlikely, given what’s happening.”
The record slaughter of shippers continues as the BDIY posts the largest overnight drop of 4.5% in the most recent 34-consecutive day trounce in dry bulk shipping rates. Short term Capsize and Panamax charters for Pacific delivery have hit $29k and $19k, respectively, both approximately 30% lower than comparable Atlantic delivery rates as the Chinese transit corridor is now massively oversupplied. At this point it is not a question of if but when the bulk of shipping companies, especially levered ones, start going bankrupt and flood the seas with yet more anchored rusting dry bulk hulls.
The United States may fall victim to bond “vigilantes” targeting indebted nations from the United Kingdom to Japan in a potential second stage of the financial crisis, New York University professor Nouriel Roubini said. 
