One of the first experts to predict the 2008 recession was to sound the alarm that another major economic slowdown is on the way.
with Recession fears In the United States, many economists expect such an economic downturn as early as this year. earlier this month, American bank Strategists They wrote that they expect a “moderate recession” sometime next year. Others, such as former Treasury Secretary Larry Summers, were even more so bearish With their predictions of a recession, and a prediction that only a deep recession will be enough to fix the 40-year high inflation hitting the country.
Now economist Nouriel Roubini – a professor at New York University and CEO of Roubini Macro Associates – whose impact on the housing market crash in 2007 and 2008 earned him the title Doctor DomLooks like he chose a side.
in an interview with Bloomberg This week, Roubini said the recession is likely to hit the US by the end of 2022 before spreading globally next year, and conceivably lasting into the whole of 2023.
“The recession will not be short and shallow,” said Roubini.
To avoid rising inflation in the US, the Federal Reserve implemented a series of violent interest rate increases to put a stop to the economy. The goal is to engineer a soft landing for the economy, as inflation returns to the Fed’s target 2% annual ratewithout causing a prolonged economic downturn or a significant rise in unemployment.
But in the current economic climate, the Fed’s soft landing target is “mission impossible” according to Roubini, who sees the rapid rise in both corporate and government debt over the past year as a debit indicator.
During the 2008 recession, Roubini argued that large amounts of Consumer and corporate debt It was mismanaged and neglected by credit agencies and the federal government, which contributed to the economic downturn. In his interview with Bloomberg, he noted that there are very similar threats facing the economy today.
Roubini said the environment created by high interest rates does not bode well for Global debt levels are on the rise accumulated in the wake of the epidemic. As lending rates continue to rise — as the Federal Reserve has done They indicated that they would—Can create an increasing number of so-called zombie companiesThese are companies that were formed during the pre-pandemic and early era of easy credit, but are now floundering, unable to turn a profit or finance their debt.
“Many zombie establishments, zombie families, corporations, banks, shadow banks and zombie countries will die” as prices continue to rise, said Roubini.
Roubini warned that a “long and ugly recession” would also destroy financial markets. S&P 500 Index – Based on a higher-than-expected inflation reading last week One of his worst days This year — it could fall between 30% and 40%, he says, depending on how severe the recession is.
worst case scenario
But despite higher interest rates after the rate hike, Roubini said inflation in the United States may persist due to the ripple supply chain shocks from the pandemic, the ongoing consequences of the Ukraine war, and China’s continued policy of non-spreading of the novel coronavirus. slow economic activity in the country.
Roubini warned that this combination of low economic growth and flat inflation could lead to a global worst-case scenario of stagflation similar to the 1970s, where prices remain high but economies stagnant anyway. Institutions, including the World Bank, have warned multiple times This year, a return to stagflation of the 1970s remains a serious concern for the global economy.
It is not the first time Roubini has expressed his pessimistic views on the future of the economy. In 2020, Roubini warned that “big disappointment“It was set to hit the United States during the 1920s, signaling rising debt levels. In July, Roubini predicted that”Sharp recession, severe debt and financial crisis“It was around the corner due to the growing number of zombie companies in the economy.
Not all market watchers agree with Roubini’s view that rising debt and inflation levels will send the economy into a deep recession. Ark Invest CEO, Cathy Wood chirp On Tuesday, hawkish economists like Roubini were on the verge of being shocked by the soon-to-be-declining inflation, pointing to a “resolve” of core inflation, the measure of overall inflation within the economy.
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