Roubini: The mother of all economic crises looms, and there will be little that policymakers can do about it
The world economy is lurching toward an unprecedented confluence of economic, financial, and debt crises, following the explosion of deficits, borrowing, and leverage in recent decades.
In the private sector, the mountain of debt includes that of households, businesses and corporations and the financial sector (liabilities of bank and nonbank institutions).
In the public sector, it includes central, provincial, and local government bonds and other formal liabilities, as well as implicit debts such as unfunded liabilities from pay-as-you-go pension schemes and health-care systems – all of which will continue to grow as societies age.
Just looking at explicit debts, the figures are staggering.
The explosion of unsustainable debt ratios implied that many borrowers – households, corporations, banks, shadow banks, governments, and even entire countries – were insolvent “zombies” that were being propped up by low interest rates (which kept their debt-servicing costs manageable).
During both the 2008 global financial crisis and the COVID-19 crisis, many insolvent agents that would have gone bankrupt were rescued by zero- or negative-interest-rate policies, QE, and outright fiscal bailouts.
Today, we are facing the worst aspects of the 1970s (stagflationary shocks) alongside the worst aspects of the global financial crisis. And this time, we cannot simply cut interest rates to stimulate demand.
To be sure, advanced economies that borrow in their own currency (kurs här) can use a bout of unexpected inflation to reduce the real value of some nominal long-term fixed-rate debt.
The mother of all stagflationary debt crises can be postponed, not avoided.
Nouriel Roubini Project Syndicate 2 December 2022
If central banks increase interest rates enough to bring inflation down to 2%, they will cause a severe economic hard landing
In these circumstances, central banks will blink.
Nouriel Roubini Project Syndicate 15 November 2022
https://englundmacro.blogspot.com/2022/11/if-central-banks-increase-interest.html
Economists Think They Can See Recession Coming—for a Change
We’re facing the most widely forecast recession in history—and investors don’t seem to care.
Since that Philly Fed survey started, not a single recession was spotted a year in advance. Economists missed the 1990, 2001 and 2008 recessions completely.
Like generals, economists are really good at fighting the last war. They build models that incorporate previous problems, and are constantly blindsided by new issues.
People think they’ve seen this movie a few times now
I put little faith in economic models that have missed so many recessions in the past. But it’s hard to have faith that stocks are having anything other than a bear-market rally, either.
James Mackintosh WSJ 4 December 2022
https://www.wsj.com/articles/economists-think-they-can-see-recession-comingfor-a-change-11670150634
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