Economist who predicted last financial crisis warns of coming 'Greater Depression'

Nouriel Roubini is a world-known economist he helped c4c the credit crisis of 2007-2008 he is the host of Nouriel today.com thank you for being with us appreciate your time a great week with you today thank you so I want to start Nouriel with your current thoughts on just how bad this can go I know you've written and talked at length lately about the components that could take this from recession to depression as you as you consider those how are we doing how our governments doing how is the reopening going are you worried that we're veering towards a bigger slump well that three scenarios for how things are going to develop in the global economy North America this year my baseline is one of a u-shape recovery where the recovery is going to be an annex a far below trend very dynamic the optimist and the markets at least the equity markets in the US are pressing in a v-shaped recovery with very strong growth in the second half of the year into next year and of course there is a risk of a L of what I call a greater depression that's my baseline for the rest of the decade but not for this year I think that there are forces are gonna lead us to a depression but the middle of the decade was not a prediction for this year essentially my view is that there's gonna be a you because this is a global shock both households and corporates will have to spend less and save more precautionary savings are gonna go higher income is gonna be lower and then the less capital spending buoyed by the corporate sector and the housing sector debt to deleverage for housing capital spending is purchase of the homes so you spend less you save more you do less tax will be a global investment slump will be a global savings glut that's a recipe for very anemic recovery of the u.s. of Canada of the global economy so the one thing that I think sets you apart from many others and that would include the vast majority of investors is this notion that this is a crisis that we all recognize that there we'll be a contraction the question is how long and how deep related to this crisis you believe that later in the decade is when there's a price to be paid that this potential for depression and deep slump happens much later is there anything between now and then that we governments could do to stave that off unfortunately fear that there are some major trends and in a recent publication I discussed what I call the ten deadly DS they're gonna lead us to a greater depression some time later in this decade is only a matter of when not whether and I think that even if we're gonna do monitoring fiscal steamers or a forum I think that train has left the station the train wreck is a slow-motion one it's not gonna happen this year but we have fundamental forces like a debt and deficits both traveling public an ally to insolvency and fund a liability coming from demographics that become worse and reward and care spending but then I had initially deflation on a real body of that's gonna increase and that's gonna make more people more in solve and then worth debasing currencies by doing effectively quantitive easing of large fiscal deficit that eventually with negative supply stock is gonna lead to inflation by the middle of the decade we have also the digital disruption because they have it for economic activity from China in Asia to North America will have to substitute labor with capital in firms will have to cut cost to save more than spend less and that's going to imply more automation more robotics we are in the process of the globalization of the couple engineers in China we are seeing this Democrat democracy backlash people are becoming scared are becoming more populist and the authoritarian populist government coming to power all over the world and we've also this dualistic is the edgy gravelly English in China the Cold War became yes in Chinese becoming colder is going to get very ugly we have digital rivalries cyber warfare is gonna get worse over the next few years this is the way warfare is going to be is not the conventional words the enemies of the Western us whether China Russia Iran North Korea they cannot fight the US on the West with conventional weapons gonna use a symmetric warfare cyber war friend way of weakening our economy society problems will interfere with the u.s. election and then finally we have also these what I call deadly man-made disasters pandemics and global climate change are not natural disasters even pandemics come from poor health condition destruction of ecosystems and so on let alone global climate change so yeah 10:4 cells that are very fundamental that existed even before this crisis in each one of them in thinking about it is exacerbated and accelerated in varied wars but is crisis and therefore will end up into a great depression it's gonna happen this decade and policies cannot do much about it was actually policies of more stimulus monetary fiscal credit and otherwise I'm gonna actually exacerbate the debt imbalances they're gonna exacerbate the debasement of currencies yes and with negative supply stop coming from the globalization protection is been populist and economic nationalist that's not increase the risk of speculation recession and inflation the underlying today the risk is deflation in a couple of years we'll have risk of inflation like we had when we had negative supply all jobs in the 1970s so when seeing ahead a greater depression a theorem so then I mean as you note many of those things would have been a risk we're already a risk there are being exacerbated I just want to focus on one of the d's that's one of the first and that's the debt level personal m and of course sovereign we are in way over our heads we were before this credit card before this great crisis i in terms of how we get out of it is there is there a natural path that would resolve that because it doesn't seem clear with governments behaving the way that they are well in the last decade debt levels that went higher initially they global financial crisis was too much private debt and then we socialize the losses there was a massive increase in public debts estimates are the public and private debt as a share of GDP is now 350 as of the end of last year but this year might be closer to 400 in advanced economies is 388 less than 300 in emerging markets in China also about 300% so that that drinks are gonna become higher in last decade what saved us was with a decorator where I and was a rhetoric about deleveraging but there was not much deleveraging occurring that servicing ratios were low because we're short rates close to zero if not negative like in Europe and Japan and we're long rates alone now again the same thing is happening right now the policies of zero policy rates or negative or QE are leading to short and long rates to be low but they are love only for safe sovereigns and save people in the private sector you can have zero policy rate you can have bond yields close to zero or negative but credit spreads in the private sector of those that are indebted whether households the corporate large and small ones financial institutions banks non-bank shadow financial institution in the caviar all those credit spread can explode if you're a situation of excessive leverage and with an explosion of leverage in the private sector especially corporates in Java Bank say in US and parts of North America and therefore doesn't matter whether a bond yields are close to zero for save government or policy rates are zero credit spreads can blow up need to blow up you have a debt crisis so now you have a deadly combination of rising debt levels they're gonna explode and you'll have now spread it spreads much higher than before yes some central banks are now buying corporate bonds and not just investment great the Fed decided then to go into the risky junk bonds but it's only folly names of those were investment greater now just below that tons of other firms that are deep into the junk bonds and they're not gonna be helped by the fact that cannot be by the fact just this morning announcement hurts major auto rental companies filing for chapter 11 bankruptcy you have major institution large and small they're gonna go bankrupt so we have a that christ is going to become explosive and with demographics and more spending on health care is needed to deal with pandemics will have unfunded liabilities from their care system that are unfunded like us medicare most of the wall that our pays you go and then you let that play those prices are gonna fall in the short run weights that are fall and the ability of people to service that that is going to reduce that's what's called a effect situation can delay heel and mouth scenario so all these things are going to lead us to that crisis over time

Channel: BNN Bloomberg

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Keywords: Nouriel Roubini, Economy, 2008, Financial Crisis, depression, Business, Investing

Id: L1DXjGBbQsY

Length: 9min 4sec (544 seconds)

Published: Wed May 06 2020