Nouriel Roubini's latest warning to the US concerns our debt, and what he sees as the two possible scenarios: Inflation or default.

This part is standard, though we'd note that many folks would have said the same thing about Japan years ago, and -- surprise, surprise -- they took a third path, deflation.

Regardless, what Roubini is really worried about is actually a Republican takeover of Congress:

What worries me most is the political gridlock in Washington. While everyone agrees that $10 trillion (Dh36.7 trillion) deficits (by the Obama administration's own estimates) for the next decade are not sustainable, there is no political will to act. The two parties are completely divided. Effectively, the Republicans are against any form of revenue increases. The Democrats are against spending cuts, especially of entitlements.

If the Republicans take control of the House of Representatives in the next election and refuse any revenue increases while the Democrats veto spending cuts, the path of least resistance will be runaway fiscal deficits which will then be monetised by the Federal Reserve, which has already embarked on this path. In just the last year alone, the Federal Reserve has bought $1.8 trillion of Treasury securities and agency debt, a course that will inevitably lead to high inflation if sustained. It is what is popularly known as printing money.

His stance arguably jibes with the market, which had a temporary freakout after Scott Brown was elected, and everyone predicted political gridlock.

Read the whole essay at Gulfnews >