Nouriel Roubini predicts world heading towards stagflation. AP.
New Delhi: Economist Nouriel Roubini, nicknamed as ‘Doctor Doom’ by Wall Street, has predicted that the world is heading towards stagflation.
“The era of the great moderation is over, we are entering the great stagflation,” Roubini, who predicted the financial crisis in 2008, said.
For the unversed, stagflation is a period of stagnant economic growth coupled with persistently high inflation and a massive surge in unemployment.
Roubini, known for his foretelling of the financial crisis, said the current situation may get even worse considering the host of risks and “mega-threats” the world is facing.
‘Mega-threats to materialise in long-term’
In an interview to the French news outlet Le Monde, Roubini said: “In the short term, there are [risks] related to the war in Ukraine, of course, to inflation and to the specter of a financial crisis which could arise in the next few months or in the next two or three years. Added to this are mega-threats likely to materialise more or less severely in the long term… starting with climate change… geopolitical tensions which could degenerate into nuclear war between great powers, and socio-political instability.”
‘No soft landing’
Roubini quashed the general consensus that believes inflationary pressures are temporary and increasing interest rates would temper soaring prices as well as provide for a “soft landing” of the economy is wrong.
He instead said that the landing will not be soft but harsh, and associated with financial stress. “Raising interest rates while the economy is losing momentum, with an overall level of debt much higher than in the 1970s, could cause a collapse in stock and bond markets, which could deepen the recession,” Roubini added.
He said that “part of the solution will necessarily involve inflation, which reduces the debt burden.”
Warning of trade war
The economist warned of a potential trade war between the West “and a group of revisionist powers,” including Russia, China, Iran and North Korea, “which could lead to a fragmentation of globalisation and a re-localisation of production chains, increasing global insecurity.”
Learn from history
Roubini requested the global community to learn from history and mobilise forces to restrict a further worsening of the crisis.
“We lived like zombies who go back to sleep despite the alarm ringing, and who have forgotten that history is not linear… The creation of major international institutions enabled us to reconnect with a period of relative peace and prosperity. But believing that such an era can last is a mistake… The main stages of grief are denial, anger, depression and acceptance. If we look our problems squarely in the face, we can wake up and start mobilising, but we’re still stuck somewhere between denial and anger,” he said.
Debt crisis to hit US this year
In an interview to Kitco News, Roubini predicted that the Fed would likely increase interest rates past 5 per cent. He further said that rates would have to reach 6 per cent to fully bring inflation in the US back on target.
The economist said that the debt crises in the US is inevitable and it could hit the US as early as 2023. He warned that the crisis could hit the economy with high unemployment, high inflation, and a severe downturn, causing stocks to tank around 30 per cent.
He said that the price of gold, the popular hedge against inflation, could rise to $3,000 per ounce by 2028 and give an average annual return of over 10 per cent in the next five years.
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