Economist Who Predicted 2008 Financial Crisis Warns About ‘Long, Ugly’ Recession

Economist Nouriel Roubini, known for his correct prediction of the financial crisis the world faced in 2008, has now warned about a “long and ugly” recession in the across the world that can start at the end of this year and continue well into 2022. He also predicted a sharp correction in the S&P 500. His warning comes after the US along with all major economies is seeing high rates of inflation amidst back to back blows including the Cocid-19 pandemic and Russia’s invasion of Ukraine.

“Even in a plain vanilla recession, the S&P 500 can fall by 30 per cent,” said Roubini, chairman and chief executive officer of Roubini Macro Associates, told Bloomberg in a recent interview. In “a real hard landing,” the US stock market index could fall by as much as 40 per cent, Roubini expected.

Roubini, also known as Dr Doom for his correct prediction of the economic crisis between 2007 and 2008, said “those expecting a shallow US recession should be looking at the large debt ratios of corporations and governments”. As debt services costs increase with central banks raising interest rates, “many zombie institutions, zombie households, corporates, banks, shadow banks and zombie countries are going to die,” he was quoted as saying. “So we’ll see who’s swimming naked.”

Roubini further said that the US’ target to achieve an inflation rate of 2 per cent without a hard landing was going to be “mission impossible” for the Federal Reserve. He had, days before the Fed meeting, expected a 75 bps rate hike and 50 basis points in both November and December. This would mean that the Fed funds rate will be between 4 per cent and 4.25 per cent by the year’s end.

However, continued inflation could mean that the Fed would have “probably have no choice” but to hike more, he said. He did not expect any fiscal remedies when the world falls into recession as governments with too much debt are “running out of fiscal bullets.” He said that high inflation would also mean that “if you do fiscal stimulus, you’re overheating the aggregate demand.”

Due to this, Roubini sees a stagflation similar to that in the 1970s and a massive financial debt. “It’s not going to be a short and shallow recession, it’s going to be severe, long and ugly,” he said.

He did give an advice to investors. “You have to be light on equities and have more cash.” Though cash is eroded by inflation, its nominal value stays at zero, “while equities and other assets can fall by 10 per cent, 20 per cent, 30 per cent.”

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