The economist nicknamed Dr. Doom, Nouriel Roubini, stated that the United States is facing a deep recession as interest rates continue to rise and the economy is burdened with high debt loads, defining “Delusional” those who expect a slight recession.
“There are many reasons why we will have a severe recession and a severe financial and debt crisis”Roubini Macro Associates president and chief executive officer told Bloomberg TV. “The idea that this is going to be short and superficial is totally delusional.”
The statements come just before the Fed meeting at which markets are expecting a further 75 basis points hike, and the release of the second quarter 2022 GDP figure.
Differences from the 1970s and 2008 recession
Among the reasons Roubini cited were historically high debt ratios in the wake of the pandemic. In particular, he cited the burden on advanced economies, which he believes will continue to grow, as well as in some subsectors.
This differs from the 1970s, he said, when the debt-to-GDP ratio was low despite the combination of stagnant growth and high inflation known as stagflation. But the nation’s debt has soared since the 2008 financial crisis, followed by low inflation or deflation due to a credit crunch and demand shock, she added.
“This time, we have negative stagflationary aggregate supply shocks and historically high debt levels”specifies Roubini. “In previous recessions, like the last two, we have had massive monetary and fiscal easing. This time we will enter a recession by tightening monetary policy. We have no fiscal space “, Roubini continues.
Concern that rising interest rates will push the economy into a recession intensified as the Fed tightened monetary policy aggressively to bring down inflation, the highest in four decades. Fed Chairman Jerome Powell said failing to restore price stability would be “Biggest mistake” that pushing the United States into a recession, which he has continued to argue, can be avoided.
Powell and his colleagues are expected to approve another 75 basis point hike this Wednesday after hikes rates in June with an aggressive 0.75% hike.
“This time around, we have a confluence of stagflation and a major debt crisis“, Roubini specifies. “So it could be worse than the 1970s and post-great financial crisis of 2008”.