Things are not looking good for the global economy according to the world-renowned professor of economics at New York University’s Stern School of Business and the founder and chairman of Roubini Global Economics, Nouriel Roubini. In a series of recent interviews, the economist, often referred to as Dr. Doom, predicts a stagflation debt crisis that will combine the worst aspects of past meltdowns.
Notably, Dr. Doom earned his nickname after successfully calling the housing and finical crisis of 2008. Since that time he has continued his teaching career and published numerous books to help educate people and prevent future economic problems. He has once again stepped into the limelight to ring the alarm bells which has many people worried.
Dr. Doom points to several economic indicators to demonstrate a path toward serious economic “Pain” as he put it. He has described the current trajectory of the market as heading towards a combination of stagflation and massive unsustainable debt. He has also pointed out that the market is already exhibiting signs of shock as the beginning of the global economic woes.
End era of Great Moderation over
One concept that many economists talk about is the theory of the Great Moderation. The great moderation was a time of decoupled debt from inflationary risks in the US. Many factors drove this phenomenon over the last 40 years. For one, there was an increase in potential growth and reduced production costs. These factors helped the US economy maintain single-digit inflation while the debt ceiling rose by trillions.
This era may be over as analysts have pointed out that inflation has been on the rise since 2021. They also have plenty of statistics to support that multiple bubbles are deflating across the market. Specifically, there is a cooling down in equity, real estate, housing, stocks, bonds, and credit instruments. These factors have made it harder for the FED to curb inflation successfully.
Jerome Powell Admits Issues
Recently, Fed Chair Jerome Powell commented on the possibility of a recession. He went as far as to dismiss the idea of a soft landing. Instead, he admitted that the chances of a short economic decline were “very challenging.” Dr. Doom chimed in on the current state of the economy by comparing it to previous crashes.
Specifically, there are a lot of characteristics surrounding this scenario that echoes market woes in both the 1970s and 2008 recessions. These moments in economic history had major economic decline. However, the current market situation resembles a combination of the two scenarios. Many are labeling the current crisis a stagflation debt crisis.
How Fed Fights Recession
This scenario will be much more difficult for the FED to control with interest rate hikes without causing a multi-year recession. The main goal of the FED is to reduce inflation and prevent it from spiraling out of control. Raising interest rates accomplishes this task if done promptly.
As prices rise, the lack of funding results in lower demand for goods and services. The lower demand means that prices begin to drop. If done correctly, interest rates may help buffer inflation and create stability. History has shown that in many instances, raising interest rates can result in the economy worsening and sliding into recession.
A recession is a prolonged period of economic decline. It’s been a serious concern for economists lately as the market’s destiny seems to be heading in that direction. Notably, inflation can lead to a recession in many ways. Technically, a recession is considered two consecutive quarters of negative economic growth, which the US has already experienced this year.
However, other factors such as rising employment and home prices have left some hesitant to place the recession label on the economy. On the other hand, Dr. Doom has slapped the “will be coming soon” sticker on the markets. He points to growing levels of private and public debt as obvious indicators.
These debts dwarf earlier recessions. Reports have put the public debts up 350% versus 200% in 1999. These debts can cause a cascade effect in recession as the rising interest rates will make them unsustainable for many debtors. The combination of massive insolvencies and higher prices could result in a cascading finical crisis predicts Dr. Doom.
Synchronized Global Recession
Another vital factor to consider is that the global economy is far tighter than it was in the past. The market depends on all economies to continue growth. As such, any failure can create supply chain woes and other issues in the market driving prices higher. Additionally, higher interest rates can mean that governments are unable to reduce high debts and deficits adding to austerity issues and civil unrest.
Interestingly, Stagflation appears to be at the top of Dr. Dooms’ concerns. Stagflation occurs when you have a sharp increase in pricing and no economic growth. One of the main factors that drive stagflation is supply chain disruptions. The global logistics sector is a trillion-dollar sector that is interwoven throughout the globe. Supply chain disruptions can cause years of issues as restarting these massive networks takes many months or years.
The last time stagflation wreaked havoc on the US economy was in the 70s. The situation was similar in that the main cause was oil prices. The oil prices shot up in the 70s due to two political actions. First, the western powers and the US were subject to an oil embargo in 1973. The embargo was a response to the Israel-Arab wars.
Again in 1979, an embargo was installed during the Islamic revolution in Iran. In both instances, higher oil prices led the economy into quick disarray. Additionally, the economic downturn quickly ended the political careers of two presidents at that time.
How to Prevent these Issues in 2022
Economists have taken many decades examining these scenarios to see if there was a better alternative. They concluded that the only thing that could have improved the situation was a harsher response from the central banks. They needed to turn the interest rates up faster and higher than they did.
It’s exactly these actions that have made Dr. Doom so vocal about his concerns. He has gone on record stating that he believes the Central Banks will not do what it takes and raise interest rates to double digits. He has stated that they may “wimp out” when it comes time to make this difficult decision. Some other factors that have led the economy to its current state include:
Supply Chain Woes
The number of supply-side shocks has hit record heights due to war and the pandemic. The effects of these negative supply shocks can be felt across the board with many grocery stores left with empty shelves. Already, there has been an increase in the cost of energy, food, fertilizers, industrial metals, and other commodities due to these issues.
On top of these problems remains the coronavirus pandemic and the war in Ukraine. Both of these problems have made it more difficult to get specific products to the global markets in time. The grain from Ukraine has been tied up due to sanctions. The same goes for Russian oil. Sadly, the EU depended on Russian oil for 40% of its energy needs. As such, the continent is now paying more for lower quality products from other regions.
When you follow the root cause of some of the other supply chain shocks, you can see that environmental problems are a major issue that can’t be ignored any longer. The combination of droughts, heat waves, hurricanes, and other disasters has led to a decimation of food in many regions. The problem has become dire in areas like Africa where the IMF continues to warn of food shortages that could lead to famine.
Another factor making it more difficult for some products to find consumers is political tensions. The introduction of sanctions and distrust between nations has led to technical and security limitations set in place. Security concerns continue to make it more difficult for countries to source high-tech chips and other vital electronics.
There is also the fact that the US dollar has been weaponized recently. The US dollar enjoyed relative dominance as the global reserve currency since the end of WWII. However, all of that is set to change as politicians have chosen to weaponize the dollar recently.
The recent use of economic warfare to combat enemies has led countries to seek out alternatives to the dollar in droves. Today, there are other options for countries to consider like cryptocurrencies and gold. Notably, every time the US dollar is weaponized another country seeks out alternatives to prevent being the victim in the future.
Wage price inflation is a problem that is seldom spoken about. The cost of goods will always rise when it cost more to make them. These costs can be from more expensive materials but they can also arise from more expensive workers, as is the case today.
There has also been a strong push toward nationalism and anti-immigration sentiment that has created a scenario in which companies must pay workers more. These prices get then handed down to consumers, which further drives the wealth inequalities that started the cycle.
It’s also important to take note of the age of the economy. Baby boomers are now getting older and spending their retirement. As the median age of the average person continues to get higher, there becomes more strain on the economy.
Young people are the workers and savers that drive an economy. The elderly spend their savings which help to fuel wages but doesn’t do as much as its young workers filling factories, buying cars and homes, and saving. When you combine this fact with the lack of generational wealth transfer this generation experienced, it’s easy to see economic issues are coming.
Major Failures on the Horizon
The global economy could face a cascading effect of failing institutions globally which would exasperate the issue further. Think of the bankruptcy of Lehman Brothers and other financial institutions but on a larger scale and globally. For example, the European bank Credit Suisse is already experiencing major economic problems with their stocks down 50% for the year.
The problem is when a major institution fails like this, it can cause the entire economy to collapse and make the FED’s job more difficult. Raising interest rates during an economic downturn brought on by institutional system failures is not a great scenario and it often leads to recession.
Protecting Your Savings During the Stagflationary Debt Crisis
Dr. Doom may have predicted the global economic recession in the works but that doesn’t mean that you have to suffer. You can take his advice and make the necessary preparations to avoid the storm. Thankfully, you have enough time and there are new options that make defeating inflation a reality. Here are some tips for protecting your wealth during the upcoming stagflation debt crisis.
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META 1 Coin
The META 1 Coin project was developed by Robert P Dunlap to take Satoshi Nakamoto’s dream of a transparent and democratic economy to new heights. The token features some unique aspects that make it ideal for savers and crypto users alike. For one, it’s backed by multiple gold-related assets.
This structure enables the token to experience appreciation over time rather than inflation. The structure and gold backing also means that the token will sees demand during market volatility. This theory was tested in the recent market correction where META 1 gained 1.35% in value.
META 1 Coin Features
META 1 Coin holders enjoy access to a variety of low-risk passive income options. The META VAULT provides 10% APY on your holdings and can be a great way to beat out inflation and secure appreciation. The protocol integrates a powerful MasterCard Debit that enables you to spend your tokens anywhere that accepts MasterCard.
The META 1 Coin also introduces some decentralization protections including anti-whale mechanisms. These systems require users to prove they are not trading firms or corporations. There is also a token limit set at $5 to prevent a single trader from taking too much control over the market.
Dr. Doom Could Help You Become Dr. Boom
The dismal views of Dr. Doom could be exactly the wake-up call you needed to position for the upcoming recession. Users who are smart enough to avoid inflation will see growing savings and less stress compared to those who will have their savings stolen from their accounts. As such, it’s vital to remember that currencies don’t disappear, they simply move to those who were prepared.