Dr Doom, Nouriel Roubini, Warns Of A “Long and Painful” Recession in 2023. He Got It Right In 2008! Here’s Why He Is Spot On Now As Well!

Dubbed Dr Doom for his “doom and gloom” predictions about the global economy, the market expert and noted economist, Nouriel Roubini, has warned about a “long and painful” recession, with stocks falling by nearly 40% and the “pain” being felt by everyone, including debt-laden corporations and households. For those who are old enough to remember, Roubini was the “expert” who “got it right” in 2008, at the time of The Great Recession, where he was among the handful of those, including our very own Raghuram Rajan, to “spot” the “bubble” in the financial sector back then, which nearly collapsed the entire global economy. So, when Dr Doom talks, we must listen and how the S&P ended Q3 with three successive quarters of decline, happening among the very few times in its history.

As I noted earlier, Nouriel Roubini’s warning comes as the global economy is likely to enter a “bottomless downturn”, mainly due to the “unwinding” of a liquidity-filled economy, coming on the back of decades of monetary “excesses” in a sort of The Great Unraveling. While Central Banks “propped up” the global economy through ultra low-interest rates (with some European nations even resorting to negative rates, where the banks pay you for keeping money with them), the high inflation, an outcome of the “Pandemic and Putin”, necessitates rate hikes, thereby “depriving” the raison detre of the “overleveraged” markets. Indeed, the global economy was on “steroids” courtesy of the Fed and other Central Bank “printing presses”, which now are following a “taper and tighten” policy, thereby letting all hell “break loose” in global markets that are gyrating wildly and behaving like Drunkards.

This had to come sooner or later. The Federal Reserve could not have sustained its QE or Quantitative Easing “forever”, and while the pandemic necessitated more monetary infusion, it also resulted in inflation. When there is too much money in the system and in people’s hands, the resultant “explosion” in demand pushes up the prices of goods and services, thereby stoking inflation. Add supply chain bottlenecks due to the pandemic and China’s Zero Covid lockdowns, and you have a “waiting to happen” crisis. Of course, the United States economy is amid an “unprecedented” jobs boom, and with wage inflation and low unemployment added to the mix, the outcome is anything but “normal”. No wonder The Atlantic Magazine calls this “The Everything is Weird” economy, as contradictory messages and economic indicators make it a “forecaster’s nightmare”.

This “abnormality” was in full display last week, as the new United Kingdom government, under Liz Truss, resorted to tax cuts never seen since the 1970s, and at the same time, the Bank of England raised rates. In other words, the government encouraged corporations and people to spend, and the BOE discouraged them from doing that. Such “anomalies” from those who are supposedly “in charge” cannot be forgiven, and so the markets did “punish” these “self goals” by almost sparking another “Lehmann” moment, where last Tuesday, the UK bond markets heart came close to a stroke. This is why Nouriel Roubini must be taken seriously, as even the US economy is contracting and flashing recessionary signs, though the Biden administration refuses to call it that. Of course, Dr Doom would be proved right again, if not now, at least in 2023, which is when the “shit hits the roof”.

The warnings of a “long and painful” recession are also prescient for another reason; we do not know the shape that the Ukraine war would take. Already Europe is reeling under a “winter from hell”, and with Putin “going for broke”, we might well see a “nuclear winter”, making this the “most dangerous” moment since the Second World War. More so, when the “endgame” for this looks to be more “zaniness” for the simple reason that the “powers that be” seem clueless in the face of an “inevitable” crash. Dr Roubini also pointed out that this time it would be different because the economic and financial fallout would be “spread out” across the economy, unlike in 2008, when it was all about the Banks. Indeed, the global economy is now in the throes of a “slow-motion collapse” with crashing markets, currency meltdowns, stagflation, and a general sense of fatigue and being “frazzled” coming together in a “perfect storm”, making us less “immune” to its virality.

Last, at home in India, there is much “chest thumping” about India being a “bright spot” among the prevailing “ocean of despair”. More so, the tag of the “world’s fastest-growing major economy” makes the “spin” much more potent. However, we Indians would be better off by being prudent as the Rupee continues to breach the lowest values daily. For an economy that is primarily a “one pony trick”, depending on the services sector, it pays to focus on the informal economy and “fix” the structural issues before aspiring to become a $5 Trillion Economy. No doubt that India@75 has discarded the “begging bowl” of yore. However, MI5’s warnings of “four meals from anarchy” remain pertinent for us as much as they were for Srilanka. Of course, India now is in a “sweet spot” where Modi is being “wooed” by both West and East. We must forge ahead with caution and be alert. To conclude, Nouriel Roubini will be proved right in the coming months for the reasons elucidated here.


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