The prestigious economist Nouriel Roubini says that the central banks they will be forced to “bend down” to avoid causing economic and financial collapses.
Roubini, known in the financial community as Dr. Doom (Doctor Catastrophe), for his forecasts on the subprime crisis that led to the financial crash of 2008, affirms that the world faces a “debt trap” of more than 300 trillion dollars between the public and private sectorscollects Financial Review.
According to the famed economist, a new era of “great stagflation” has arrived, and central banks cannot raise interest rates enough to bring inflation back to target levels.
“Central banks are in a debt trap and cannot continue to raise interest rates“, he claimed. “There is so much debt in the system that if they raise rates enough to combat inflation, there will be a real hard landing leading to serious debt defaults,” adds Roubini.
“If we try to raise interest rates to fight inflation, we will cause massive debt defaults: households, businesses, financial institutions, governments. There would be economic and financial collapses. So the central banks will have to chicken out”, says Roubini.
As a result, he asserts, inflation will stay at high levels for longer. “I’m realist”, Add.
Professor Roubini said the forces that caused the benign “great moderation” era of low inflation before the pandemic were now reversing.
Those positive supply shocks that have helped keep inflation low over the past few decades included international trade, globalization, migration, the integration of China and emerging countries into the world economy, technological innovation, and the weak bargaining power of Workers.
“These positive supply shocks are reversing and more of them are turning negative, so we end up with higher inflation”, sentence. “The new era will be characterized by stagflation, debt and instability,” Roubini concluded.
Source: Ambito
