American economist Nouriel Roubini has some dark predictions about the economy. In a no-holds-barred write up for Project Syndicate, the economist warns of recession 2022, and how it will exacerbate financial distress and global debt crisis.
Another report adds weight to his concerns as the new Bloomberg Economics model projections show that a US recession is imminent in the next 12 months. Bloomberg economists Anna Wong and Eliza Winger predicted a higher recession probability across all timeframes in contrast to the government’s chipper tone.
The US recession 2022
Nouriel Roubini believes that the global debt-ridden economy could face a future with high inflation and unemployment. In a Time essay, he warns, “The decade ahead may well be a stagflationary debt crisis the likes of which we’ve never seen before.” A professor of economics at Stern at New York University who has been nicknamed “Dr Doom” and “permabear” by the media.
Although he bears news people do not want to hear, he has been proven right many times. In 2006, he predicted the end of the real-estate bubble and the financial crisis of 2008. In February 2020, he warned of financial vulnerabilities that could sink the economy.
Roubini pointed out that whenever US inflation has peaked over 5% the Fed has tried to control it with the results giving either a hard landing or a recession. He stated that a tighter monetary policy ultimately takes its toll on the economy. “Bubbles are deflating everywhere — including in public and private equity, real estate, housing, meme stocks, crypto, SPACs, bonds, and credit instruments,” he said. “Real and financial wealth is falling, and debt and debt-servicing ratios are rising.”
The economist cautioned that across the world supply chain issues and consistent shocks to the economy have sustained high inflation. As a result, there is a slowdown in growth and inflation remains high.
Such a situation gives birth to a government’s worst nightmare – a persistent stagflation, which is a recession with high inflation.
Roubini warned investors that the market could plunge to new depths and that stocks and long-term bonds might bleed money. According to him, if recession 2022 happens, it is better to place your bets on golds and other metals and real-estate that can withstand the storm.
The Bloomberg prediction
Close on the heels of Nouriel Roubini’s piece for Time, Bloomberg published their report on a possible US recession. The Bloomberg Economics model uses 13 macroeconomic and financial indicators to predict the chance of a downturn at horizons of one month to two years. The model showed that the probability of a recession in the next 11 months stood at 73%.
US inflation has hit a four-decade high and casts a long shadow over the upcoming holiday season.
A separate survey of 42 economists by Bloomberg also echoed the views of Nouriel Roubini. While the probability of a recession stood at 50% last month, today it’s at 60%.
Many economists and experts have warned of the possibility of a slowing economy that has faced trouble due to supply chain issues, Chain’s hard Covid lockdowns, and Russia’s invasion of Ukraine. In September, World Bank Chief Economist Indermit Gill expressed concern over generalized stagflation and its effects.
Former Treasury Secretary Larry Summers warned of delayed responses to inflation and how history shows us the “substantial costs” to such a situation.
Roubini has warned that when it arrives, the US recession will be long and ugly, and that Americans must be prepared for it. Looking at the global situation, he believes that the crisis is here. And it’s time governments and countries pull up their socks.
