Nouriel Roubini, who predicts that we will see a stagflationist debt crisis that we have never seen before for the next decade, says that only assets such as gold will save.
“We are going real to a crisis we have never seen before”
Nouriel Roubini, CEO of Roubini Macro Associate and professor at NYU Stern School of Business, warns that the world is facing a decade-long stagflationary debt crisis like never before. In a recent article in Time, Roubini detailed his expectations with examples from the 1970s and 2008. He explained that due to the stagflation direction involved in large public debts, the next crisis will not be like the previous ones:
We had stagflation in the 1970s, but there were no major debt crises because debt levels were low. After 2008 we had a debt crisis, followed by low inflation or deflation, as the credit crunch created a negative demand shock. Today, we face supply shocks in the context of much higher debt levels, implying that we’re going real for a combination of 1970s-style stagflation and 2008-style debt crises – that is, a stagflationary debt crisis.
Stagflation is an environment characterized by higher inflation and slower growth.
The Fed has increased rates by 300 basis points this year to deal with inflation. Therefore, it is now widely accepted that the possibility of a “soft landing” by the Fed will be strong. However, how severe and permanent this economic slowdown will be is still a matter of debate. Roubini writes in his article on this bet:
The US experienced two consecutive quarters of negative economic growth in the first half of this year, but job creation was strong, so we were not in official calm now. However, the labor market is now softening, so a calm is likely in the US and other advanced economies by the end of the year.
But there are enough signs to argue that the severe stagflationary debt crisis will determine the next calm. Roubini explains it this way:
As a share of global GDP, private and public debt levels are much higher today than in the past, rising from 200% in 1999 to 350% today. Under these circumstances, the rapid normalization of monetary policy and rising interest rates will push highly leveraged households, companies, financial institutions and governments into bankruptcy and default.
Investors need assets like gold
Roubini stated that a classic asset portfolio would not work in this macro environment, with a 60/40 portfolio of stocks and bonds experiencing major losses for the first time in decades in 2022. In light of this, investors need to look for assets that hedge against inflation and political and geopolitical risks. According to Roubini, this may include gold:
In the middle of these are short-term government bonds and inflation-indexed bonds, gold and other precious metals, and real estate that is strong in environmental damage.
Koindeks.comIn this article, we have presented the current analysis of the London Gold Market Association.