Global financial markets should brace for a period of decline that will be more severe than the crashes of the 1970s and 2008, according to renowned economist and New York University professor Nouriel Roubini.
He told Bloomberg on Thursday that central banks will eventually give up on their monetary policy tightening before inflation is ever defeated. âItâs going to get ugly, the recession, and youâll have a financial crisis,â Roubini warned.
He pointed to stocks that are down more than 20% this year, to strains in private equity, to a cooling in US real estate, and to a slumping credit market, where companies took advantage of years of low interest rates to pile on debt.
âInflation is not going to fall fast enough because you have the negative supply shock,â he explained, adding: âRemember, when you have negative supply shock, you get a recession and high inflation. Weâre not going to get a fall in inflation thatâs rapid enough to go to 2%.â
According to Roubini, the result of all this will be a period that combines the worst of the 1970s and the Global Financial Crisis. âThis is just the beginning of that pain. Wait until itâs real pain. And then you have a major financial institution that may crack globally, not in the US maybe now, but certainly internationally,â he said.
âThere are a couple of firms that are huge and systemic. They can go under. You might have another Lehman effect, then the Fed will have to wimp out. Youâll have a severe recession and youâll have a financial market shock. Theyâre going to wimp out for sure,â the economist warned.
Roubini came to prominence for predicting the financial crisis of 2008-09 and was dubbed âDoctor Doomâ by Wall Street.
