New York University professor Nouriel Roubini gained a reputation as a pessimist on Wall Street, having shared many gloomy predictions with the public over the years, to the point that he was nicknamed Dr. Doom. But many market players forgot that Roubini himself invented the nickname in the middle of the decade The first of this century, when he tried to warn the world of an inevitable financial crisis.
An article in Yahoo Finance notes that in 2006, when investment banks were still routinely issuing bullish forecasts for the US economy, Roubini told anyone who would listen that a housing crisis was just around the corner. His bearish views were included in an International Monetary Fund (IMF) document published that same year. year, alongside those of other economists who issued much more positive forecasts.The document states that Rubini told a group of 300 fund employees at a meeting held in Washington that a housing market crash would lead to a deep global recession.
Of course, Rubini was right then, so perhaps it is worth suspending his warnings about the economic doomsday that is now waiting around the corner, even if his predictions seem to be repeating themselves. Roubini claimed earlier this year that the US economy would fall into a deep recession by the end of this year, calling anyone who believes it can still be softened “delusional.”
Now the economist claims that the economy is on its way to “a stagflation crisis the likes of which we have not seen before”. In a column published in Time magazine, Roubini wrote that a toxic economic combination of low growth and high inflation will lead to “massive defaults and a chain of financial crises” around the world in the coming years. His arguments are based on the idea that we are entering a new era in the world economy, after “hyper-globalization”, which included relative geopolitical stability, and technological innovation that helped keep inflation moderate since the Cold War.
Roubini believes that the era we are entering, characterized by “great stagflationary instability,” will include trends such as population aging, climate change, supply chain disruptions, stronger protectionism, and bringing industry back home to the country’s borders. In order to fight inflation in such an environment, according to him, the central banks will have to raise interest rates back to their historical norms after years of going in the opposite direction.
“Rapid normalization of monetary policy and rising interest rates will drive heavily leveraged households, businesses, financial institutions and governments to bankruptcy and insolvency,” according to Roubini, who noted that the relative share of global private and public debt in global GDP jumped from 200% in 1999 to 350% this year.
But unlike other economists, Roubini also claims that the officials of the central banks will not be able to “swagger” and decide to stop raising interest rates in the near future, otherwise inflation will become a persistent problem all over the world. In fact, Roubini believes that central banks are stuck between a rock and a hard place due to the current inflationary environment. “When dealing with stagflationary markets, the central banks must tighten their policies – even when the economy is heading towards a recession,” he said.
Roubini ended the article with advice for investors: avoid the stock markets and long-term bonds. According to him, “Investors should find assets that will be hedged against inflation, geopolitical risks and environmental damage. These include short-term government bonds and those linked to inflation, gold and other precious metals and real estate that is immune to environmental damage.”