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Nouriel Roubini – “Dr. Doom” – Predicts Major Financial Crisis In 2020

September 17th, 2018

Economist  Nouriel Roubini famously predicted the Global Financial Crisis of 2008. His forecast was so accurate, he was dubbed “Dr. Doom” by pundits, though Roubini rejects that term, preferring he be dubbed “Dr. Realist.” And it is that sense of realism, and his track record as a highly professional economist analysts, that  led him to predict, in an article published by Project Syndicate,  that a major financial crisis will arise in 202o, leading to a severe global recession.

The first cause of the 2020 crisis, according to Roubini, is “the fiscal-stimulus policies that are currently pushing the annual U.S. growth rate above its 2% potential are unsustainable. By 2020, the stimulus will run out, and a modest fiscal drag will pull growth from 3% to slightly below 2%.”

The poor timing of U.S. stimulus spending will contribute to inflation, compelling the Federal Reserve to continue increasing its interest rates. These inflationary trends will occur in other major economies, with other central banks accordingly replicating the actions of the U.S. Federal Reserve.

Additional factors adding to the toxic fiscal and economic mix are the policies of the Trump administration leading to a major global trades war,  interdiction of global supply chains and immigration policies that restrict growth and investment.  Parallel to this, fiscal and monetary policies in Europe will slow down European economies.

Roubini adds that leverage in emerging markets and several advanced economies is overly excessive, real estate too expensive, leading to a major correction if over-valued equities. In particular, fixed income assets will be highly vulnerable, and the correction, exacerbated by high frequency/algorithmic trading, will create flash crashes.   In this scenario, a backstop by central banks will not be accessible, as these institutions pursue normalized interest rates  and policies in an environment of rising inflation.

With a presidential election looming in 2020, Roubini believes the Trump administration may pursue  a “wag the dog” scenario, such as a military conflict with Iran, as a distraction in the face of a deteriorating economy,  triggering “a stagflationary geopolitical shock not unlike the oil-price spikes of 1973, 1979, and 1990. Needless to say, that would make the oncoming global recession even more severe.”

The global economic crisis  Nouriel Roubini believes will occur in 2020 will like be more severe than 2008. The noted economist write in his article, ” once the perfect storm outlined above occurs, the policy tools for addressing it will be sorely lacking. The space for fiscal stimulus is already limited by massive public debt. The possibility for more unconventional monetary policies will be limited by bloated balance sheets and the lack of headroom to cut policy rates. And financial-sector bailouts will be intolerable in countries with resurgent populist movements and near-insolvent governments…when it comes, the next crisis and recession could be even more severe and prolonged than the last.”

The dark economic forecast offered by Nouriel Roubini  may revive the earlier moniker of “Dr. Doom.” however, as with his prediction made prior to the 2008 Global Financial Crisis, it has the ring of analytical realism and unassailable logic. On that basis, 2008 may very well bring the onset of a global economic crisis so severe it may lead, unlike the crisis of 2008, into a prolonged economic depression that threatens geopolitical stability as well and economic and financial equilibrium.


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