InvestorQ : What has the celebrated economist, Nouriel Roubini said about global recession and could be right?
Crowny Pinto made post

What has the celebrated economist, Nouriel Roubini said about global recession and could be right?

2 months ago

Most people take the predictions of Nouriel Roubini very seriously. After all, he was the very person who precisely called the global financial crisis in 2008. He was also the man who precisely called the 2011 meltdown in the European Union and the debt crisis. The same Nouriel Roubini is now calling a major global recession and another 40% correction in stocks. How close is he to the truth? After all, the Dow and the NASDAQ have fallen by 20% and 30% respectively from their peak levels and are already in bear zone.

Nouriel Roubini blames too much of hawkishness by the Fed and other central banks for this big recession risk. More importantly, the tightening is happening too late and yet too fast. According to Roubini, controlling inflation at 2% is a good thought process, but it is almost impossible to achieve it without a hard landing. Raising rates across developed markets will result in a hard landing and as funds get tighter, and hits capital spending as well as consumption. You can get into the situation easily, but getting out is difficult.

Roubini believes there could be a global recession markets over the last 14 years since the financial crisis were built on hype of too much liquidity. The end result is that central banks are left holding trillions of dollars of bonds in their books which they will unwind. In short, the central banks created a huge mountain of fresh liquidity that should have caused inflation. Now that is manifesting and as the Fed fights hard to get over that inflation, it is likely to result in a prolonged recession globally.

The bigger question is if stock markets can fall 40%. It will happen in different ways. For instance, India may lose 20-25% on the index and another 20% on rupee depreciation, which is already down 8.2% this year. US dollar has an exorbitant privilege, so it may see the entire pressure visible on indices. Once again, Nouriel Roubini may be eerily close to the truth. There may be no way out other than a full-fledged recession followed by a tanking of equity and financial markets globally.