- There are signs a debt crisis is forming and the economy is headed for a hard landing, Nouriel Roubini says.
- Roubini predicted a deep recession and a 40% fall in the stock market by the end of the year.
- He has warned that a wide range of shocks will have dire effects on global economies.
There are signs that a debt crisis has already started taking shape, and a hard landing of the economy before the end of the year is now the baseline scenario, according to top economist Nouriel Roubini.
Roubini, who has earned the nickname "Dr. Doom" for his pessimistic views on markets and the economy, has warned of a looming debt and inflationary crisis for about a year. Previously, he predicted it would lead to a Frankenstein-style recession by the end of 2022, mixing the worst aspects of 1970s stagflation and the 2008 financial crisis.
And the signs of that financial meltdown are finally emerging, Roubini said, who referred to a hard landing as the baseline scenario in an op-ed for Project Syndicate on Monday.
"Signs of strain in debt markets are mounting … the crisis is here," Roubini said, referring to recent moves by central bankers to stem market volatility. After being upended by a new national tax plan last week, the Bank of England began snapping up government bonds to stabilize its debt market. Additionally, high-yield bond spreads, long-term bond rates, and other indicators are flashing warnings that more volatility is likely, with the US 10-year Treasury briefly topping 4% last week for the first time since 2008.
Those warnings have largely stemmed from built-up supply shocks and inflationary pressures over the past several years, such as ultra-loose monetary policy of the pandemic, China's lockdown restrictions, and Russia's invasion of Ukraine, which has cause energy prices to go haywire.
"Everyone now recognizes that these persistent negative supply shocks have contributed to inflation, and the European Central Bank, the Bank of England, and the US Federal Reserve have begun to acknowledge that a soft landing will be exceedingly difficult to pull off," Roubini warned.
Powell himself has grown bearish, switching to talk of a "softish landing" with "some pain." And the US has never achieved a soft landing with over 5% inflation and sub-5% unemployment since World War II, Roubini pointed, calling the hopes for a mild recession "delusional."
The stagflationary-debt crisis Roubini predicts could lead stocks to plunge 40%.
"[The] most forward-looking indicators of economic activity in advanced economies point to a sharp slowdown that will grow even worse with monetary-policy tightening. A hard landing by year's end should be regarded as the baseline scenario," he warned.