KONTAN.CO.ID – One of the experts who first predicted the 2008 recession sounded the alarm bell that another major economic downturn was on the way.
Launch Fortunewith fears of a recession rising in the US, many economists expect such a decline at the start of this year.
In early September, Bank of America strategists wrote that they expected a “mild recession” to hit sometime next year. Others, such as former Treasury Secretary Larry Summers, are more bearish with their recession forecasts. He predicts that only a deep recession will be enough to fix the 40-year high inflation plaguing the country.
Now, economist Nouriel Roubini is of the same opinion. Roubini is a New York University professor and CEO of Roubini Macro Associates. He predicted the crash of the housing market in 2007 and 2008 which earned him the nickname Dr. Doom or Father of the Apocalypse.
In an interview with Bloomberg this week, Roubini said that a recession is likely to hit the US by the end of 2022 before spreading globally next year, which is expected to last until 2023.
“This is not going to be a short, shallow recession; it will be severe, long and bad,” said Roubini.
To fend off rising US inflation, the Federal Reserve has implemented a series of aggressive interest rate hikes to put the brakes on the economy. The goal is to engineer a soft landing for the economy, in which inflation returns to the 2% annual rate the Fed has targeted, without triggering a prolonged economic downturn or a significant rise in unemployment.
But with the current economic climate, the Fed’s soft landing goal is “mission impossible” according to Roubini. He sees the rapid increase in corporate and government debt over the past year as a damning indicator.
During the 2008 recession, Roubini argued that large amounts of consumer and corporate debt had been mismanaged and neglected by credit agencies and the federal government, thus contributing to the decline.
In his interview with Bloomberghe noted that very similar threats are facing the economy today.
Roubini said that the environment created by rising interest rates did not bode well for rising levels of global debt accumulating after the pandemic. As lending rates continue to rise as the Federal Reserve has hinted, it can create more and more companies that are called zombies.
He means companies that were formed during the easy credit era before and the start of the pandemic, but are now stumbling so they can’t turn a profit or finance their debt.
“Many zombie institutions, zombie households, corporations, banks, shadow banks and zombie nations will die as interest rates continue to rise,” Roubini said.
A “long and bad recession” will also destroy financial markets, Roubini warned. The S&P 500 is expected to fall anywhere between 30% and 40%, he said, depending on how severe the recession is.
Aksi The Fed
Previously reported, launched Reuters, The Fed raised its target interest rate to a range of 3.00%-3.25%. This is the highest level since 2008. In addition, new projections show policy rates to rise to between 4.25%-4.50% by the end of this year before reaching 4.50%-4.75% in 2023.
Fed Governor Jerome Powell said U.S. central bank officials are determined to bring inflation down from its highest level in four decades and will continue to do so until the job is done. According to him, this is a process that he repeats will not come without pain.
“We have to keep inflation behind us,” Powell said at a news conference following the release of the Fed’s policy statement and updated quarterly economic projections.
He added, “I wish there was a painless way to do that. (but) There isn’t.”
Editor: Barratut Taqiyyah Rafie