Nouriel Roubini Predicts a Crisis 'Worse' Than the 1970s | Odd Lots

[Music] thank you hello and welcome to another episode of the odd Lots podcast I'm Tracy Alloway and I'm Joe weisenthal Joe I'm thinking back to the spring of 2020. the depths of the covid-19 pandemic and the big Market sell-off I don't like thinking I mean it was a terrible time it was about why are you why are you reminding us of that well I remember we spoke to one particular guest in I think it was May of 2020 and he came on and basically said that we're gonna see a bad economic recovery and we're going to see inflation as a result of what was happening and I think at the time both you and I were a little a little skeptical you know at that particular moment everyone was talking about deflation and the possibility of a prolonged depression really yeah you're totally right and then also by like sort of late 2020 or even like summer 2020 optimism started to grow oh yeah oh we're gonna have this we're going to come out of this with the boom that we got the policy just right that we're going to have all you know we avoided the mistakes of 2008 that's right that's right and the stock market was surging and I think there was just a lot of optimism even outside the stock market that like we're going to be on this new Superior trajectory post pandemic yeah and of course now fast forward about two years and uh we're talking about the pain of higher interest rates as the Federal Reserve tries to Tamp down on inflation that is at its highest and I think four decades people are talking about stress in the financial Market the potential for something to break as these rate increases go through and we're already seeing some stuff internationally start to break so I think it's a perfect time to catch up with that original guest who did get a lot right in May of 2020 when you know there was a lot of uncertainty yeah you know something you mentioned this fears of that something is going to break and I'm thinking you know our regular guest John Turk has written about this and others this idea that what if you you know the real economy employment is holding up okay but the financial system starts to Creak and that something breaks and the financial system creating this real tension for central banks that still want to fight inflation it's a pretty confusing time it is so why don't we bring in noriel rubini of course we're going to let him do a Victory lap on the show but we also want to talk to him about the risks that he's seeing now because he has a new book out it's uh it's coming out on October 18th it's called Mega threats 10 dangerous trends that imperil our future and how to survive them so hopefully the perfect person to be speaking to right now uh nurio rubini thank you so much for joining us great being with you such a pleasure to do it again shall we should we let you have that Victory lap so you know how did what did you see in early 2020 that you think other people notably perhaps certain policy makers might have missed well at that time the entire talk was about the risk of not just an economic contraction but also of deflation because it was a shock to aggregate demand and a credit crunch but I think what I I saw that other people saw as well you know early on people like Larry Summers Muhammad alien and others talked at the amount of the stimulus monitoring fiscal will be excessive of course we didn't do enough on the fiscal side in 2008 but between Trump and Biden we had about five trillion dollars of physical stimulus that is something like about 20 percent of GDP that was excessive and of course the FED that went back to zero credit is in quantitative easing backstopping Money Market Commercial paper high yield high grade Banks non-banks corporates households you name it everybody Under the Sun uh I think the difference between me and people like Larry was that they were stressing that there will be inflation because of a too much stimulus and I agreed on that that half of the problem was bad policies to lose monetary fiscal and credit using but from early on I also realized that this will be a negative aggregate supply shock the disruption that came to Global Supply chains the shutdown of economic activity from services to initially manufacturing the reduction in the labor Supply and then we ended up with a great resignation and those initial negative Supply shock was Amplified of course this year by the Russian invasion of Ukraine this brutal Invasion has led to a spike in oil and natural gas prices food fertilizers Industrial Metals that's another negative Supply shock and the third one is the continuation of the zero tolerance policy of China towards covet it's creating further bottlenecks so most people were saying we're going to get inflation because of x excessive overeating because of the bad policy and excessive stimulus I think my contribution to that discussion was to emphasize the aggregate supply shocks I'm old enough and not grayer and I remember the two all shocks of 73 and 79 that led not only to inflation but also to stagflation so most people were worried about inflation and overeating and excessive growth I started to worry about instead not only inflation but also recession because of the negative Supply shock so that was maybe the the new twist that I gave to that debate so looking at the situation today in October 2022 we still have obviously extremely elevated inflation really no signs that it's turning the corner yet at all maybe a little bit if you look at headline of the elevated inflation today how much would you at this point attribute it to the Persistence of these Supply shocks that you identify including the ongoing War versus is still paying the price in some way for what you characterize as EXT excessive fiscal and monetary policy because I think it matters when thinking about how much the FED is going to have to tighten to get inflation back to its Target well it depends on the countries I would say the solomonic answer is half and half but of course in Europe given the exposure to Russian energy is more that shock in the US where the in terms of monetary physical and credit using even worse than Europe and Europe did a lot in the UK in addition to that there was another negative Supply shock self-inflicted because that brexit decision that was stagflationally reduced the growth and increase the cost of production uh same thing in China some of it is self-inflicted so I would say it depends on the country but I would say it's a combination of of both of them yeah the serious negative Supply shocks and you had really a policy stimulus that was by any standard massively excessive across the world in all advanced economies now in my book what I point out is that while in the short term there are at least three negative aggregate supply shocks that are covered initially Russia Ukraine and now the China policy I identify in the book where I have a chapter about the great coming stagflation that there are 11 medium-term aggregate supply shops that are negative they're going to reduce potential growth and they're going to increase cost of production and if then you have a loose monitoring fiscal policy because they expect that Central bank's gonna blink for a reason I can discuss then we end up like the 70s with inflation and stagflation and with a debt crisis as well so it's going to be worse than the 70s so this is not just the short-term phenomenon people say the global Supply bottlenecks my end after November when Xi Jinping is going to care about growth I think there are many other forces is a protectionism and deglobalization French Shoring and restoring manufacturing from China to high cost Europe and U.S aging of population restriction of migration decoupling between us and China geopolitical risk and depression that's gonna fragment decouple balkanize and declobalize the global economy the impact of global climate change the impact of uh cyber warfare the impact of recurring pandemics the backlash against income and wealth inequalities leading to policies pro-labor your workers and so on and of course the dollarization of the dollar when eventually people are going to get out of dollar assets because of the financial sanction and so on those are 11 forces that are medium term they have nothing to do with covet in Russia Ukraine they're going to be reducing Road increase cost of production and I think central banks will have to Blink like the first example is what happened in the UK If you're going to have an economic crash you're going to have a financial crash as you increase interest rates you're going to winp out guaranteed the FED did it in 2019 the Boe has done it now the ECB is going to have to do it the FED is going to do it it's gonna happen for sure and therefore we're gonna have an an engine of inflation expectation I don't believe central banks what they say we're gonna do fight inflation at any cost even if there is a recession even if there's a hard Landing first of all it's not going to be a short and shallow recession it's going to be ugly and then you'll have Financial stresses in a financial and a debt crisis at that point they're going to wimp out it went out actually worse than the 70s because in the 70s we had two treasury shops and with inflation recession but that ratio where 100 of GDP for private and public sector and advanced economies after the GFC where the debt crisis mortgage housing banks that but we had deflation because of the negative aggregate demand shock and a credit crunch so we could ease monitoring fiscal policies like we wanted today we have levels of debt to GDP of 350 percent of GDP globally 420 in advanced economies private in public and we have this massive negative Supply shocks so we're not gonna have only inflation We're not gonna have only speculation we'll have a stagflationary debt crisis the worst of the 70s and the worst of the positive Superior material I I gotta say you're not helping with my anxiety levels right now I'm gonna go oh I'm moving my portfolio to cash one second I gotta pause it pause the pause cash is not enough oh sure she's gonna be wiped out and I can discuss they can hide you against inflation all right so um this idea of a stag play a great coming stagflation I mean stagflation already seems like the nightmare scenario for central banks if you have high prices and lower growth but if you tack onto that a debt crisis plus stagflation that just seems like incredibly difficult for any Central Bank to navigate what is the appropriate policy response especially if inflation is being driven by supply side bottlenecks as you described well some people say if inflation is driven by negative supply shops we shouldn't tighten too much because Central Bank can affect aggregate demand not aggregate supply but the reality is that like in the 70s if you don't fight inflation you have a de-amering of inflation expectation you have a wage price spiral and then you end up in a nightmare so unfortunately even if the negative Supply shock as opposed to aggregate demand you have to tighten monetary policy to make sure that you don't have an an engine of inflation expectation otherwise you make the same mistake it was done in the 70s when they reply to these two negative supply shop with loose monetary policy and lose fiscal policy it ends up in stipulation so the right response would be to fight it but in the 70s we had the nasty recession 74.75 in a Double D procession in 1882 when volca came to power and it caused the double dip recession to finally break the back of inflation expectation and we're at the beginning of the American Carnage because a lot of the industry went bus for good but in the 70s we did not have a debt crisis in U.S or advanced economies where the debt crisis of course in Latin America because they borrowed like crazy in the 70s and when the FED went to 20 interest rates of course Brazil Argentina Mexico the old default and went bankrupt so we had this taxation but not the debt crisis today the problem we're facing is that if you fight inflation not only you're gonna have a recession and the idea of the organization short and shallow recession playing vanilla Garden variety is totally delusional I mean it's totally delusional because we have amounts of debts like we've never seen before in previous recession like kovi GFC we could do monitoring fiscal easing because we had deflation now we have to tithe and monitor a fiscal policy into a recession inflation is global and everybody is tightening and therefore as I pointed out out we get the worst of the 70s and the worst of the GFC it's going to be long ugly protracted with financial stresses Financial instability and debt crisis that's what we're facing right now so what would be the optimal response try to avoid an unhing of inflation expectation but you have two problems if you do the right thing one you have a recession to get nasty second you have a financial and debt crisis like you're not seen before and that's gonna lead central banks to wimp out because between causing an economic crash is severe and a financial crash or blinking and wimping out and monetizing those deficits and wiping out the real value of nominal long-term fixed uh nominal debt at long duration the path of least resistance politically is going to be to monetize it right and therefore to cause inflation and saturation like the 70s and the first example is exactly the bo we face with a financial shock what they do they totally wimped out and they go back to mmt so that's gonna happen across the board so I don't believe central banks when they say we're gonna fight inflation at any cost because they have delusion of either a soft Landing or a hard Landing that is short and shallow two courts is a negative growth and then you return to growth and easing that's not gonna happen it's gonna get ugly the recession and you'll have a financial crisis so how can they do it they're not going to do it talk a little bit more about hiking rates and fighting inflation in a period of high levels of private sector debt and I could see it going both ways because on the other one hand I could imagine that in a heavily indebted economy uh in uh interest rate increases have a quick transmission mechanism and that that significantly impedes private sector activity and helps you fight inflation sooner or I could see it the other way that a high levels of private sector debt uh create a over sensitivity maybe the debt crisis scenario that you're talking about walk through US specifically how it unfolds the intersection in the U.S of higher rates and high levels of indebtedness um in short it becomes very ugly and it becomes very ugly because uh the indebtedness of the private sector in the US was very high and Rising even after the GFC because we at zero rates QE credit easing and so on and then we Double Down On It uh during the covet crisis and of course during the GFC was House of debt and Banks but then they build up in the next decade was of corporate debt and of Shadow Banks leveraged loans Clo's high yield high grade Fallen names of the new name it and while the date of the household sector is now reduced there are significant pockets of the household sector those who have low income and low wealth and they're borrowing they're going to be under stress especially as they get unemployed so the biggest stress is going to be corporates and Shadow Banks but eventually the official banks are linked to the shadow Banks and the house of sector is going to also get in trouble those who have low income they don't have much wealth they have a lot of debts and their income is fragile to a recession so we'll have a debt crisis so what's happening in this situation is that if you don't fight inflation if you fight inflation first of all you have to jack up interest rates to the point in which there is a debt crisis a recession and then interests are so high that the zombie hustle corporates Banks Shadow Banks government countries that are insolvent are gonna go bankrupt and they were bailed out twice during the GFC during covet with high debt ratios but we had low debt servicing ratio because of zero rates on the short end on the long end and all the other policy of easy now instead into a session we have to raise rates because there is inflation so those were swimming naked as they Hydra seed you'll see where they were those who were at the emperor without clothes you'll see what they are and that zombies are going to be recognized as zombies are gonna default we're not going to be able to bail them out this time around we'll have to raise rates and I gotta go bankrupt across the board and I'm not saying everything and everybody in every country but the amounts of debts private public across Advanced economy in emerging market implies a civil debt crisis now interest rates for the public sector gonna rise and in the UK with stupid fiscal policy those spreads widened in significant terms but then the private sector spreads over the riskless rates right you have spread over treasury mortgages high yield high grade consumer loan and so on so if you are an insolvent agent uh it's not going to be just increasing long-term interest is on Treasury it's going to increase your cost of servicing your debt but the spread widening on your own private debt is going to cause another reason for default and already high yield right now has gone from 300 to over 600 the entire clo and leverage loan market right now is shut down literally shut down and this is only the beginning of it of that stress on the private sector so we're going to see significant financial distress in the corporate sector in the shadow banks in parts of the hustle sector so I mean you just laid out basically the stuff that you think could break first as interest rates rise where do you see other pockets of weakness and I'm thinking specifically about some of the international developments the impact of the stronger dollar we've seen that way already on a number of Emerging Markets you have taken out dollar denominated debt that's getting a lot more expensive as rates go up and the dollar strengthens at the same time talk to us about the the sort of international repercussions here well the international repercussions for emerging market is that many not all of them of these Emerging Markets are in deep deep trouble I don't want to land them together there are better credits worse credits better solving more solvents so you're about 40 countries but I would say good two-thirds of them are in trouble and then travel for several reasons one interest is arising U.S in advanced economies so their interest rates and their spreads arising even more to the our currencies are weakening as the dollar is strengthening and unless you are a commodity exporter mostly the guys in the Gulf who are making a fortune everybody else among Emerging Markets tend to be with your exception a commodity importer especially in Asia but also in other parts of the world and therefore you have also terms of trade shock so it's a it's a quadruple whammy you have first of all the Rays of interest rates and advanced economy pushing your interests it's higher you have the weekend of your currency and you have a lot of dollar debt and the real value goes higher you have a negative terms of trade shock and the Slowdown of growth in the recession U.S in Europe and UK in China effectively there'll be a recession weakens your export markets to your own economic growth so it's the perfect storm for the weakest emerging markets and I would say a good two-thirds of these emerging market right now have these types of Economic and financial fragility now if we're gonna have a recession in the US is is going to be even worse in Europe in my view for several reasons reason number one Europe is more exposed to the Russian energy shock and it's going to get worse this war and there'll be a total cutoff of natural gas secondly the dollar is strong and that reduces inflation the euro is weak that increases inflation inflation is already double digit in the Eurozone let alone in the UK three Europe is exposed to export to China and China is slowing down very very very sharply and four within the Eurozone you have this fragmentation risk of the risk of a widening of spreads of the periphery there's this new tool TPI but if the new Italian government follows policies that are on a collision course with Europe they're not going to qualify for the bailout that the ECB is going to make for those that have unwarranted widening of their spreads as opposed to those that are warranted by poor economic and fiscal policy so things are going to be even worse in Europe than they are in the US and the basket case of course is the UK right now that is pricing like literally like an emerging market usually you do physical stimulus in U.S the dollar gets stronger interest rates rise only little in the UK the the pound is collapsing and the interest rates are through the roof even with the support of the Boe so it's really becoming an Emerging Market is there a you know the way you describe things so much is already baked in particularly with these trends that are in place with deglobalization and uh these shocks that we've seen to all Supply chains and then the accumulated uh debts that we've seen public and private at this point are there better policy paths than what you expect uh uh uh leader policy makers to take I mean could there is there what what is the wiggle room or what is the uh what would uh what would you do what would you advise uh policymakers and say the US and Europe to do well you know there's always a difference between uh normative statements about how the world should be as opposed to positive Statesmen about what is the world that's going to be unlikely to be right so I'm making for now positive Statesman about the fact they're going to have a nasty recession Gnostic circulation and another severe financial crisis I think that's the Baseline and I think that the policy trade-off like during the GFC is too late right now because if you fight inflation you'll have a recession and a financial crisis and if you don't fight inflation you're gonna have the anchor of inflation and you get inflation and stagflation and still a financial crisis because you can wipe out with unexpected inflation the real value of nominal long duration that it fixed interest rates but you can fool all of the people some of the time you can fool some of the people all of the time you cannot fool all of the people all of the time and if if we use the inflation tax to wipe out private in public that is nominal long duration it fixed interest rates that's going to come to maturity and then it's going to reprise either at very high interest rates if you borrow long term or if you borrow short term it's gonna price in the inflation so you can for a couple of years resolve at that problem private in public with unexpected inflation but then you're gonna cause a bigger debt crisis because once prices reprise for inflation and the spreads real spreads and nominal spread and the inflation volatility leads you to higher nominal interest rates then you have a bigger debt problem down the line so I fear that right now we have three problems a problem of inflation a problem of growth and a problem of financial stability with too much debt and collapsing asset Bubbles and you cannot resolve them I could tell you what I would do in principle but whatever you do is not going to avoid a crisis at this point the margin for Action is very very limited I will tell you if I were you I would avoid the 70s avoid inflation by going real hard on fighting inflation and avoiding the anchoring of influential expectation but that's going to lead to a nasty recession and a financial crisis like we didn't have in the 70s because we didn't have a debt problem and the recession in That 70s was a decade-long stagnation this time is going to be worse because of the financial and the debt problem so unfortunately at this point damn if you do them if you don't there is no easy way out of this so let me um let me ask you basically the same question but from a different perspective what should investors do here and this is something you know this is something I've been thinking about recently and one of our recent guests Toby nangle came on the show he was talking about the moves in the guilt Market basically saying you can't unburn toast so once you have this extreme volatility once interest rates start to reset higher you can't kind of undo that and all of that historic volatility that anxiety for investors it all weighs on them for years to come and you potentially get a repricing of risk in general Capital becomes more expensive asset prices start to deteriorate as you just mentioned so what can investors do here well usually investors have some variant of a 60 40. formula for their portfolio six the equity 40 fixed income long duration treasuries or 730 or even respiratory Bridgewater is a variant of the same but usually the price of bonds and price of equities are negatively correlated in normal times risk on Equity do well bond on the well risk of Bonduel acquitted on the well growth Equity well bond yields go up price Falls recession bundles fall price goes up price of equity Falls so you're not only hedged and a 60 40 or 70 30 portfolio has given you for the last few decades positive returns normally more so in Good Times less so in bad times and always this year for the first time in 30 years you have lost money on your Equity side you know your fixed income because 64 is based on low inflation but if an inflation is rising two things happen long-term interest rates go higher that hurts Equity because they discount factor for Equity becomes higher and we're seeing the correction of equity and growth stocks and tax stocks that are long duration hurt even more because their long duration assets and more sensitive to interest rates but you lost 25 on the SMP but this year you have lost 25 percent on your own duration treasuries because thank you treasuries have gone up from one and a half to three and a half four and that increasing interest rates is a 25 fall in their price so you lost money on equity and you lost money even on the safe asset there was nowhere to hide and if you went into cash you lost because of inflation so that's the problem when you're Rising inflation that 60 40 doesn't work what's the solution is not cash that's been giving you zero nominal return wiped out by 10 inflation you have to go into assets that are hedge against inflation one of them is tips the reprise when inflation is higher the second one is very short duration treasuries because as interest rates go higher the price of them Falls much less than the one of a 10 year or third year treasury as interests are higher you get higher return even in expected inflation that's one secondly you might want to go into gold gold has not done very well in the last year but once inflation expectations become an hinged when the central bank is going to Blink and until now central banks have played tough that's why gold has done poorly because the real rates were going higher then gold is gonna outperform like other precious metals like probably many Commodities but the Commodities are going to be heard by the recession so gold is actually less cyclical three in the 70s but equities and real estate did poorly but Equity did much worse than real estate the peer ratio for SMP was down to eight in 1982 because real estate is in fixed Supply you can often reprise the rents and it's a good hedge against uh inflation as long as monetary policy is not very tight of course the risks this year have done poorly because the Fed was hiking but again when the feds are going to wimp out I think that real estate is going to outperform equities because of the nature of being a fixed Supply kind of asset at this in the short run the only caveat is that a lot of real estate is going to be stranded because of global climate change literally there are maps that show that half of the US in the next 20 years is going to be either underwater on the coastlines or too hot or droughts or wildfires to be living in it and people have stupidly moved from New York to Miami and from San Francisco to Austin but Florida is going to be flawed that and tax is going to be too hard to survive there so they'll have to be a massive migration from South and the coastline towards the only part of the U.S is going to survive climate change this is the Midwest into essentially Canada so there'll be trillions of dollars of real estate assets are going to be damaged by essentially global climate change so if you have to worry about that you have to find the types of investment in the right parts of the United States so it's a combination short-term treasuries of tips and other inflation index bonds gold and the right type of real estate is going to be the future and I'm actually working on a financial product that is exactly creating first an index and then an ETF along the lines of hedging the risk of inflation in the basement of yet currency by having a combination dynamically optimized of these assets that's something I'm going to be launching in the next month or so yeah I remember talking to you about it earlier in the year this idea of a sort of tokenized dollar that's more tied to hard assets is that you know this is also something we've discussed many times on the podcast at this point the idea of the dollar losing its Reserve currency status and one of the things about that is you know people have been talking about it for a long time and it hasn't yet happened what in your opinion makes this time different several things of course it's not going to happen overnight the decline of Reserve currency status takes uh takes many years but there are at least two factors one is that the US has very large current account and fiscal deficits there are fiscal deficits in other advanced economies but they tend to run current account surpluses or a balance while we're between deficits and historically every time they had twin deficits and the dollar was too strong you have a cycle of dollar going up and then has to go down in order to restore the external competitiveness and the fall of the dollar can be 30 to 40 percent on a weighted basis so that's gonna be something that is going to happen especially as the FED is going to wimp out while other central banks will have to start to tighten secondly I think that the big revolution right now is that a change regime change is that we've weaponized the US dollar for National Security and foreign policy purposes and they might be the right thing to do where to punish our enemies but as Russia North Korea Iran or even China with trade and financial sanction because there is a geopolitical rivalry it's going to get worse but they know right now even the Chinese that their dollar can be seized like they were seas in color Korea in Iran and now in Russia and not just the dollar also the Yen the Euro the pound the Swiss Francs so if you need another Reserve currency it is a reserve currency or asset there's no dollar euro Yen pound and so on or Frank which one is the only one out there that is going to be an alternative that cannot be seized by the U.S or Europe or Japan it's gold but gold not in the vault in New York New York Fried or London but gold in your own Vault or caves in Russia or China wherever you have it I think that that's going to be what's gonna lead to a sharp fall of the value of the dollar the Strategic rival the U.S have a plan to completely phase out their exposure to Dollar assets and that's gonna be a regime change for the long run as opposed to being a short-term factor it's gonna happen I really thought we might hear noriel make the case for Bitcoin there but I have what basically just one last question and you know Bitcoin is another coin we'll break that out into a separate story but it's gonna be gold there's gonna be tips it's not gonna be Bitcoin frankly uh last question for me you know investors are very uh big on this idea of like when is the Fed gonna pivot and the way you see it is not pivot per se but essentially cry Uncle wimp out see what is that point what would the will the FED see either in real economic activity or financial market conditions that you see would be the Catalyst for the fed and maybe other Central Bankers to wimp out in your words what will it take well the the bank of England already went out and if you remember what happened in 1819 in December of 18 the FED went from 225 to 250. then they said we're going to go to three percent we're going to continue QT what happened during that quarter stock market collapsed by 20 higher spread go from 300 to 900 and the entire clone leveraged loan Market shuts down two weeks later January 2nd of 2019 Jay Powell comes up and says I was kidding when I said we're going to go to three percent I was kidding when I said we're gonna continue QT we're gonna stop raising rates we're gonna stop QT and two months later because there was a Slowdown of growth given the tension between us and China on trade and because there were some Ripple problem in the Ripple Market what do they do the cut rates from Two and a Half to 175 and they resume QE through the back door through the reserve rape operation this was for a mild mild Financial shop and a growth Slowdown that's what they did they totally wimped out they totally blinked even the FED let alone the Boe so we're not gonna do it again when the recession is gonna start and it's gonna get ugly and it's part of the recession inflation is not gonna fall fast enough because we have the negative Supply shock remember when you have negative supply shop you get the recession in high inflation therefore we're not going to get a fall in inflation that's rapid enough to go to two percent and we're already in financial stress right now stock market down 25 percent SMP NASDAQ more than 30 percent Mimi stock collapse spark collabs crypto collapse uh private Equity collapse housing is collapsing clo Mark and the shutdown leverage loan Market shut down higher spreads are already at 600 plus even high grade is that interested like you're never seen in years and this is just the beginning of that pain wait until it's a real pain and then you have even a major financial institution that May Crack globally not in the US maybe now but certainly internationally there are a couple of firms that are huge and systemic they can go under you might have another limit effect then the FED will have to wimp out you'll have a severe recession and you'll have a financial Market shock they're gonna wimp out for sure so just to add to my anxiety levels which are already the roof I want to I want to talk about the social consequences of this because it seems like an environment where inflation is high uh growth is slowing you know the FED is explicitly trying to boost unemployment it seems like that is probably the worst environment for you know your average person on the street and it almost seems like the feds like the fed's goals here they're almost anti-American at this point or like Auntie the American dream right like housing more expressions in the housing market crushing demand crushing uh labor force what are going to be the social consequences of central banks you know having to do this in order to put a cap on price increases um they're going to be severe you know we're already seeing of course a backlash against uh free market backlashing gains trade and globalization even a backlash against technology about to push against you know let's say fair policies because there's even a massive massive increase in income and wealth inequality this leading to populism of the extreme right and or of extreme left in many countries across the world and authoritarian regions becoming more popular across the board these are a bit of the 30s literally it's scary what's happening and then if on the top of it to fight inflation now you're gonna have a severe recession and unemployment going to six seven eight percent or more and then your assets are collapsing the value of your home the value of your stocks and your debt service investors are going to go to the roof there'll be a revolution that's why the FED cannot but monetize it because we're already having huge amount of social tension there is already massive political polarization there already so many people are angry whether they are voting for the right or the left it doesn't matter there are those who are left behind those have been screwed by globalization and the current sets of policies those who don't have jobs and skills and income and wealth you have you know 100 000 deaths of Despair every year in the US from opioids and other drug overdose you have two billion people that are addicted to opioids this is a massacre literally a massacre people are helpless hopeless jobless skillless worthless and they're desperate that's leading to that resentment and people either voting for on one side Trump or right-wing conspiracy types or for very extreme leftist policies depending on whether you are social and religiously conservative as opposed to Liberal but economic policies are the same nativists nationalists against trade against migration against free market and so on so it's gonna get more ugly it's gonna get more ugly because we're already at the breaking point we could have literally in the us as we know the entire books written recently about the risk of Civil War violence means Insurrection secession this is what is the risk that U.S is facing let alone other countries not maybe in this election but 2024. so we're already in a real time bomb in terms of social and political pressures and an economic crisis and a financial crisis and a geopolitical crisis is going to make these things much worse much worse all right noriel um I think that's I can't say it's a good place to leave it but it is definitely a place to leave it we really appreciate you coming back on all thoughts um as I mentioned before your insights you know broadly approved to turn out correct the last time we had you on the show uh the book Mega threats 10 dangerous trends that imperil our future and how to survive them is out on October 18th thanks so much nurio thanks for having me a great advisor again thank you bye [Music] so Joe I think I need therapy after that conversation and you know last time we spoke to nurio we had a lot of commentators who were like shocked that we were so shocked by what he was saying but I gotta I'm trying to use humor to diffuse the situation yeah he sounds bearish yeah you think just a little he's uh I he doesn't make me want to buy the dip now but I do think like you know this is what we've been talking about for a long time the me the economic mix this time does seem different like at a minimum inflation is a constraint on the central bank and it's going to be much more difficult for them to come in and stabilize financial markets um stimulate the economy if they need to if they're having to deal with that price constraint you know something I keep thinking about how much this environment is sort of the mirror image of uh the great financial crisis you know in coming out of the GFC we had terrible growth this big collapse and deflation everyone was worried about we can't hit the two percent Target and then years of sort of basically a decade of moderate growth in the economy and this time we had a the crisis coincided with a stock market Surge and a growth surge so maybe it maybe the uh maybe the mirror image is the long ugly slug recurring crisis I don't know something to look forward to something to look for so many episodes to come all right uh shall we leave it there leave it there okay this has been another episode of the odd Lots podcast I'm Tracy Alloway you can follow me on Twitter at Tracy Alloway and I'm Joe why isn't all you can follow me on Twitter at the stalwart follow our guest on Twitter nurio rubini he's at nurio follow our producer Carmen Rodriguez at Carmen Armin and check out all of our podcasts at Bloomberg under the handle at podcasts thanks for listening [Music]

Channel: Bloomberg Markets and Finance

Views: 89,819

Keywords: bloomberg, podcast, podcasts, bloomberg podcasts, businessweek, businessweek podcast, finance, finance podcast, market news, markets podcast, Nouriel Roubini, nouriel roubini odd lots, nouriel roubini interview, odd lots, odd lots podcast, markets, recession, economy

Id: 1RYGWwn88wQ

Length: 42min 40sec (2560 seconds)

Published: Thu Oct 20 2022

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