In September 2006, Nouriel Roubini told the International Monetary Fund
what it didn’t want to hear. Standing before an audience of economists
at the organization’s headquarters, the New York University professor warned
that the U.S. housing market would soon collapse — and, quite possibly,
bring the global financial system down with it. Real-estate values had
been propped up by unsustainably shady lending practices, Roubini
explained. Once those prices came back to earth, millions of underwater
homeowners would default on their mortgages, trillions of dollars worth
of mortgage-backed securities would unravel, and hedge funds, investment
banks, and lenders like Fannie Mae and Freddie Mac could sink into
insolvency.
Read more at;
Why the Economy Is Headed for a Post-Coronavirus Depression
Of
course, the ensuing two years turned Roubini’s prophecy into history,
and the little-known scholar of emerging markets into a Wall Street
celebrity.
A decade later, “Dr. Doom” is a bear once again. While many investors bet on a “V-shaped recovery,” Roubini is staking his reputation on an L-shaped depression. The economist (and host of a biweekly economic news broadcast) does
expect things to get better before they get worse: He foresees a slow,
lackluster (i.e., “U-shaped”) economic rebound in the pandemic’s
immediate aftermath. But he insists that this recovery will quickly
collapse beneath the weight of the global economy’s accumulated debts.
Specifically, Roubini argues that the massive private debts accrued
during both the 2008 crash and COVID-19 crisis will durably depress
consumption and weaken the short-lived recovery. Meanwhile, the aging of
populations across the West will further undermine growth while
increasing the fiscal burdens of states already saddled with hazardous
debt loads. Although deficit spending is necessary in the present
crisis, and will appear benign at the onset of recovery, it is laying
the kindling for an inflationary conflagration by mid-decade. As the
deepening geopolitical rift between the United States and China triggers
a wave of deglobalization, negative supply shocks akin those of the
1970s are going to raise the cost of real resources, even as
hyperexploited workers suffer perpetual wage and benefit declines.
Prices will rise, but growth will peter out, since ordinary people will
be forced to pare back their consumption more and more. Stagflation will
beget depression. And through it all, humanity will be beset by
unnatural disasters, from extreme weather events wrought by man-made
climate change to pandemics induced by our disruption of natural
ecosystems.
Read more at;
Why the Economy Is Headed for a Post-Coronavirus Depression
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