EDITOR'S NOTE: Dr. Doom Roubini is predicting another financial crisis. Get ready for another Lehman-style shock to rock the markets and economy. Last week, widespread investor optimism buoyed a market that was on its way toward finding its real value (read: much lower than it is now). It’s hard to believe that the rally was a reflection of the economy’s health because we know, clearly, that’s far from the case. There are too many threats unmitigated and unresolved, from inflation to falling production and looming debt defaults, to name just a few. Economist Nouriel Roubini, Dr. Doom himself sees the landscape with much greater clarity than Wall Street itself. The plunge is coming; it’s just a matter of time. And what we're about to see is going to be just as worse, if not more, than anything we’ve seen in the last 50 years.
- Markets should brace for a period of decline that echoes crashes of the 1970s and 2008, according to Nouriel Roubini.
- He predicted that central banks will "wimp out" from fighting inflation, fueling a financial crisis.
- "It's going to get ugly, the recession, and you'll have a financial crisis," Roubini told Bloomberg.
The global economy will experience a period of decline that combines the worst aspects of the 2008 financial crisis and the 1970s, Nouriel Roubini has warned.
The :Dr Doom" economist said Wednesday that he expects red-hot inflation to lead to a recession – before major cracks start to appear in financial markets.
"It's going to get ugly, the recession, and you'll have a financial crisis," he told Bloomberg's Odd Lots podcast.
Roubini sees supply-side shocks including the coronavirus pandemic and the war in Ukraine as drivers of global stagflation, which refers to a combination of soaring prices and sluggish growth.
That would echo the economic pain of the 1970s, when efforts to tame high inflation plunged the US into a deep recession.
"Inflation is not going to fall fast enough because you have the negative supply shock," Roubini said.
"Remember when you have negative supply shock, you get a recession and high inflation," he added. "We're not going to get a fall in inflation that's rapid enough to go to 2%."
But Roubini also compared the current outlook to the 2008 crisis – when the bankruptcy of Lehman Brothers and other financial institutions fuel led a major market crash. European bank Credit Suisse is one major bank under significant pressure in 2022, with its shares plummeting by over 50% as investors fret about the bank's liquidity.
"This is just the beginning of that pain," Roubini said. "Wait until it's real pain."
"And then you have a major financial institution that may crack globally, not in the US maybe now, but certainly internationally," he added. "There are a couple of firms that are huge and systemic. They can go under. You might have another Lehman effect."
The Federal Reserve will have to ease its aggressive tightening campaign if markets start to crack in a similar manner to 2008, according to Roubini.
While that pivot might bring some short-term cheer for stocks, "Dr Doom" believes it could lead to inflation becoming entrenched at a point where a severe recession will have already become inevitable.
"The Fed will have to wimp out. You'll have a severe recession and you'll have a financial market shock," he said.
"I don't believe central banks when they say 'we're going to fight inflation at any cost,' because they have a delusion of either a soft landing or a hard landing that is short and shallow — two quarters of negative growth and then you return to growth and easing," Roubini added. "That's not going to happen."
Originally published on Markets Insider.