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The global economy is headed for an unavoidable crash, according to Nouriel Roubini.
The ‘Dr Doom’ economist warned that ‘the mother of all stagflationary debt crises’ is coming.
The Federal Reserve might be powerless to prevent a collapse, he said.
The global economy could be headed for crisis with policymakers powerless to prevent a toxic combination of high inflation, low growth, and mounting debt, Nouriel Roubini has warned.
The economist — who’s often dubbed “Dr Doom” for his pessimistic outlook — said last week that markets should brace for a stagflationary debt crisis should the Federal Reserve and other central banks decide to abandon their ongoing campaign to tame inflation in a bid to prop up growth.
“The mother of all stagflationary debt crises can be postponed, not avoided,” Roubini wrote in a Project Syndicate op-ed published Friday.
Roubini is forecasting an economic downturn that sees stagflation — a combination of high inflation and sluggish growth — accelerate a debt crisis.
He warned that a combination of low interest rates and easy availability of money had fueled a borrowing binge over the years since the 2008 financial crisis — creating “zombie” households, banks, and governments that are now struggling to cope with rising debt costs.
The Federal Reserve has boosted interest rates by 375 basis points this year as part of an unusually aggressive monetary tightening campaign to fight inflation that hit 40-year highs earlier in 2022.
“With central banks forced to increase interest rates in an effort to restore price stability, zombies are experiencing sharp increases in their debt-servicing costs,” Roubini said.
But it’s no longer possible for the Fed and other policymakers to support those debt-laden entities by slashing interest rates, as inflation remains close to multidecade highs in most developed markets.
“Simply bailing out private and public agents with loose macro policies would pour more gasoline on the inflationary fire,” Roubini said. “That means there will be a hard landing — a deep, protracted recession — on top of a severe financial crisis.”
“Once the inflation genie gets out of the bottle — which is what will happen when central banks abandon the fight in the face of the looming economic and financial crash — nominal and real borrowing costs will surge,” he added.
This isn’t the first time that Roubini has predicted an economic crash.
The economist earned the “Dr Doom” nickname with a series of pessimistic predictions in the 2000s, and has repeatedly warned that the US is headed for a long, painful recession that could drag the benchmark S&P 500 stock market index down another 30%.