February 8, 2023

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“inevitable accident”; Find out what Nouriel Roubini thinks about the global economy with Investing.com

By Alessandro Albano

Investing.com – Nouriel Roubini, renowned economist and professor at New York University, is known for his pessimistic predictions about the state of the global economy and financial markets. But your opinion Project SyndicateTitled “The Inevitable Crash,” the globalized world will experience an inevitable collapse in a matter of months that not even central banks can avoid.

“After years of very loose fiscal, monetary, and credit policies and the onset of large negative supply shocks, stagnation pressures are now putting pressure on a mountain of public and private sectors,” the economist wrote, “as the mother of all crises comes, there is little the authorities can do.

In his arguments, Roubini points to data on indebtedness that he describes as “amazing”. In his words: “Globally, total public and private sector debt to GDP has increased from 200% in 1999 to 350% in 2021. This ratio has now reached 420% in advanced economies and 330% in China. In the United States, it was 420%, higher than during the Great Depression and post-World War II periods.

This excessive debt has been going on for a long time, and according to the article, low interest rates have sustained “insolvent zombies,” meaning “households, corporations, banks, mutual funds, governments, and even entire countries” in crisis. 2008 and covid-19.

But now inflation, fueled by the same ultra-loose fiscal, monetary and credit policies, has ended, in Roubini’s assessment, “this rebirth of the financial dead.” “Zombies face a sharp increase in the cost of servicing their debt” as central banks are forced to raise interest rates.

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This drastic change represents a “triple step” as inflation already erodes households’ real incomes and devalues ​​their assets, such as real estate and financial assets. “The same applies to weak and overstretched corporations, financial institutions and governments: they face a sharp rise in borrowing costs, a decline in income and earnings, and a simultaneous devaluation of their assets” .

Economists point out that unlike the crises mentioned above, too loose policies can no longer be implemented because they will throw more fuel on the inflationary fire and lead to a deep and prolonged recession and severe financial crisis. .

“As asset bubbles burst, debt-servicing rates rise, and inflation-adjusted incomes of households, corporations, and governments fall, economic distress and financial collapse will feed back,” the article predicts.

“Undoubtedly, advanced economies that have borrowed in their own currencies could use an episode of unexpected inflation to reduce the real value of some long-term fixed-rate debt. With governments unwilling to raise taxes or cut spending to reduce their deficits, central bank deficit monetization may again be considered the path of least resistance. But It is impossible to fool all people all the time.

“The mother of all stagnant credit crises can be delayed but not avoided,” concludes Roubini Project Syndicate🇧🇷