Nouriel Roubini Predicts a Crisis 'Worse' Than the 1970s

us of that? Well, I remember we spoke to one particular guest in I think it was May of and he came on and basically said that we're going to see a bad economic recovery and we're going to see inflation as a result of what was happening. And I think at the time both you and I were a little a little skeptical. You know, at that particular moment, everyone was talking about deflation and the possibility of a

prolonged depression. Really, yeah, you're totally right. And then also by like sort of late or even like summer, optimism started to grow. Oh yeah, we're gonna have this. We're gonna come out of this with the boom that we got the policy just right, that we're going to have all. You know, we avoided the mistakes of two thousand that's right, that's right, and the stock market was surging, and I think there was just a lot of optimism even outside the stock market that like, we're going to be on

this new superior trajectory post pandemic. Yeah. And of course, now fast forward about two years and uh, we're talking about the pain of higher interest rates as the Federal Reserve tries to tamp down on inflation that is that it's highest. And I think four decades people are talking about stress in the financial market, the potential for something to break as these rate increases go through, and we're

already seeing some stuff internationally start to break. So I think it's a perfect time to catch up with that original guest who did get a lot right in May

when you know there was a lot of uncertainty. Yeah, you know something you mentioned the fears of that something is going to break, and I'm thinking, you know, our regular guest John Turk has We's written about this and others, this idea that what if, you know, the real economy, employment is holding up okay, but the financial system starts to creak and that something breaks in the financial system, creating this real tension for central banks that still want

to fight inflation. It's a pretty confusing time, it is, So why don't we bring in Neurial Rubini. Of course we're gonna let him do a victory lap on the show, but we also want to talk to him about the risks that he's seeing now because he has a new book out. It's uh, it's coming out on October eighteenth. It's called Mega Threats tend dangerous trends that imperil our future and how to survive them. So hopefully the perfect person to be speaking to right now, Uh, Neurio Rubini,

thank you so much for joining us. Great thing with you. That's a pleasure to do it again. So we should we let you have that victory lap. So, you know, how did what did you see in early that you think other people, notably perhaps certain policymakers might have missed? Well at that time, the entire talk was about the risk of not just an economic contraction but also of deflation because it was a shock to aggregate demand and a credit crunch. The thing what I saw that other

people saw as well. You know, early on people like Larry Summers, Mohammed Lay and others talk that the amount of the stimulus monitor and fiscal will be excessive. Of course we didn't do enough on the physical side in two thousand and eight, but between the Trump and Biden with about five three do dollars of physical stimuls that

is something like about d DP that was excessive. And of course the fact that went back to zero credit easing, quantity of easing back stopping money market, commercial paper, hill, high grade banks, don't banks, corporate households, you name it,

everybody under the sun. I think the difference between me and people like Larry was that they were stressing that will be inflation because of a aggregate amendment shock, too much stimulus, and I agreed on that that half of the problem was bad policies to lose monetary, physical and credit ezing. But from early on I also realized that this will be a negative aggregate supply shock, the disruption

that came to global supply chains. They shutdown of economic activity from services to initially manufacturing, the reduction in the labor supply, and then we ended up with a great resignation and those initial negative supply shock was amplified of course this year by the Russian invasion of Ukraine. This brutal invasion is led to a spike in oil and natural gas prices, food fertilizer, industrial methods. That's another negative supply shock. And the third one is the continue sation

of the zero tolerance policy of China towards COVID. That's creating further bottlenecks. So most people were saying we're gonna get inflation because of excessive overeating, because of the bad policy and excessive stimulus. I think my contribution to that discussion was to emphasize that the aggregate supply shops and old enough in a grayer and I remember the two all shocks of seventy three and seventy nine that led

not only to inflation but also to star inflation. So most people were worried about inflation and overeating and excessive growth. I started to worry about instead not only inflation but also recession because of the negative supply shops. So that was maybe the new twist that I gave to that debate. So looking at the situation today in October two thousand and twenty two, we still have obviously extremely elevated inflation, really no signs that it's turning the corner yet at all.

Maybe a little bit if you look at headline of the elevated inflation and today, how much would you at this point attribute it to the persistence of these supply shocks that you identify, including the ongoing war, versus still paying the price in some way for what you characterize as excessive fiscal and monetary policy, because I think it matters when thinking about how much the FED is going to have to tighten to get the inflation back to its target. Well, it depends on the countries. I would

say the solharmonic answer is half and half. But of course in Europe, given the exposure to ration energy, is more that shock. In the U S where in ters a monitor, fiscal and credit is in even worse than Europe, and Europe did a lot. In the UK. In addition to that, there was another negative supply sharks, self inflicted those the Brexit decision that was staculation ary reduced the growth and increased that cost of production. Same thing in China.

Some of it is self inflicted. So I would say it depends on the country, but I would say is combination of of both of them. You had serious negative supply shops and you had really a policy steamus that was by any standard massively excessive across the world in

all advanced economies. Now, in my book, what I point out is that while in the short term that at least three negative aggregate supply shops that are COVID initially Russia, Ukraine and now the China policy, I identify in the book wherever chapter about the great Coming Staculation, that there are eleven medium term aggregate supply shops that are negative. They're going to reduce potential growth and they're gonna increase

cost of production. And if then you have a loose monitor and physical policy because I expected central banks gonna blink for a reason I can discuss, then went up like the seventies with inflation and stacculation and with a dead crisis as well. So it's gonna be worse than the seventies. So this is not just the short term phenomenon. People say they global supply bottom next my end, after November, when is gonna care about growth? I think there are

many other forces. Is a protectionism and the globalization, French shoring and restoring of manufacturing from China to I causset Europe in US, aging of population, restriction of migration, decoupling

between US and China. Geopolitical risk and depression that's gonna fragment the couple valcanized and the globalize, the global economy, the impact of global climate change, the impact of cyber warfare, the impact of the current pandemics, the backlash against income and wealth inequalities leading to policies pro labor your workers and so on, and of course digularization of the dollar, when eventually people are gonna get out of dollar assets

because of the financial sanction and so on. Those are elevened forces that are medium termed have nothing to do with COVID in Russia, Ukraine. They're gonna be reducing growth, increased cost of production, and I think central banks will have to blink like the first exact police what happened in the the UK. If you're gonna have an economic crash, you're gonna have a financial crash. As you increase interest rates, you're gonna wimp out. Guaranteed. The Fed didd into thousand nineteen,

the BO he has done it. Now the e c B is gonna have to do it. The Fed is gonna do it. It's gonna happen for sure, and therefore we're gonna have an engine of inflation expectation. I don't believe sent to a bank what they say, we're gonna do fight inflation at any cost, even if there is a recession, even if there's a hard landing. First of all, it's not going to be a short and shallow recession. It's going to be ugly, and then you have financial

stresses and a financial debt crisis. At that point they're gonna wimp out and went out actually worse than the seventies because in the seventies where two straight treasury shocks and with inflational recession, but that ratio where a hundred percent of GDP for private and public. Second advanced economies after the GFC where the dead crisis mortgage housing bank that but we have deflation because it was a negative aggregate, the man shop and a credit crunch, so we could

ease monitor and fiscal policies like we wanted. Today, we have levels of debt to GDP of three hundred and fifty pc of GDP globally, four d and twenty in advanced economies private in public, and we have these massive negative supply shops. So we're not gonna have only inflation. We're not gonna have only stagflation. We'll have a stagflationary debt prices the worst of the seventies and the worst

of the positive superior sterio. I gotta say, you're not helping with my anxiety levels right now, I'm gonna go to I'm moving my portfolio to cash. One second pasitive positive podcast. She's gonna be wiped up by inflation. Pats and I can discuss they can hidge your insinflation. All right, So, um, this idea of a stag fla a great coming stagflation, I mean, stagflation already seems like the nightmare scenario for central banks if you have high prices and lower growth.

But if you tack onto that a debt crisis plus stagflation just seems like incredibly difficult for any central pin to navigate. What is the appropriate policy response, especially if inflation is being driven by supply side bottlenecks as you described well. Some people say, if inflation is driven by negative supply shops, we shouldn't tighten too much because central

bank can affect aggregate the man, not aggregate supply. But the reality is that like in the seventies, if you don't fight inflation, you have a the anchoring of inflation expectation, you have a wage price parallel, and then you end up in a nightmare. So unfortunately, even if the negative supply shop as opposed to aggreg the man you have to tighten monetary policy to make sure that you don't have an injine of inflation expectation. Otherwise you make the

same mistake it was done in the seventies. They reply to these two negative supply shops with loose monetary policy and loose fist health policy. You went up instaculation. So the right response would be to fight it. But in the seventies we had the nasty recession sev seventy five and a double deepercession in eighteen eighty two when Walker came to power, and it caused the double dee precession

to finally break the back of inflation expectations. And we're at the beginning of the American carnage because a lot of the industry went bass for good. But in the seventies we did not have a dead crisis in US or advanced The column is where the dead crisis of course in Latin America because they borrowed like crazy in the seventies, and when the FED were to twenty percent interest rates, of course Brazil, Argentina, Mexico, they all the faults and went bankrupt. So we had the stacturation, but

not a dead crisis. Today, the problem we're facing is that if you fight inflation, not only you're gonna have recession. And the idea they're gonna have a short and shallow recession train vanilla garden variety is totally delusional. I mean it's totally delusional because we have amounts of death like we've never seen before. In previous rest actial like COVID GFC, we could do monitoring physcal easy because you have deflation. Now we're to tighten monitor and physical policy into a recession.

Inflation is global and everybody is tightening, and therefore, as I pointed out, we get the worst of the seventies and the worst of the GFC. It's gonna be long, ugly protracted with financial stresses, financial stability, and that crisis. That's what we're facing right now. So what would be the optimal response? Try to avoid an injuring of inflation expectation. But you have two problems. If you do the right thing,

One you have a recession to get nasty. Second, you have a financial and that crisis like you're not seeing before, and that's gonna lead central banks to wimp out. Because between causing an economic crash is severe and a financial crash, or blinking and whimping out and monetizing those deficits and wiping out the real value of nominal long term fits UH, nominal debt and blown duration, the part of list resistance politically is gonna be to monetize it and therefore to

cause inflation and stat racial like the seventies. And the first example is exactly the b O E face with a financial shock. What they do They totally wimped out and they go back to M M T. So that's gonna happen across the board. So I don't believe central banks when they say we're gonna fight in fresh at any cost, because their delusion of either soft landing or a hard landing it is short and shallow. Two courts as a negative growth and then you return to growth

and easy, that's not gonna happen. It's gonna get ugly the recession and you'll have a financial crisis. So how can they do it they're not gonna do it. Talk a little bit more about hiking rates and fighting inflation in a period of high levels of private sector debt.

And I could see it going both ways, because on the other one hand, I could imagine that in a heavily indebted economy UH interest rate increases have a quick transmission mechanism and that that significantly impedes private sector activity and helps you fight inflation sooner. Or I could see it the other way that high levels of private sector

debt created over sensitivity. Maybe the debt crisis scenario that you're talking about walk through a specifically, how it unfolds the intersection in the US of higher rates and high levels of indebtedness UM. In short, that it becomes very ugly, and it becomes very ugly because the indebtedness of the private sector in the US was very high and rising even after the GFC, because we had zero rates, quee credit easing, and so on, and then we doubled down

on it UH during the COVID crisis. And of course during the GFC was household debt and banks, but then they build up in the next decade was of corporate debt and of shadow banks, leverage loans, ce laws, high yield, high grade, fallen aims of the new name it. And while the death of the household sector is now reduced, there are significant pockets of the household sector those who have low income and low wealth and the borrowing. They're

gonna be under stress, especially as they get unemployed. So the biggest stress is going to be corporates and shadow banks. But eventually the official banks are linked to the shadow banks, and the household sector is going to also get in trouble. Those who have low income, they don't have much wealthy, have a lot of debt, and their income is fragile to a recession, so we'll have a dead crisis. So what's happening in this situation is that if you don't

fight inflation. If you fight inflation, first of all, you have to jack up interest rates to the point in which there is a debt crisis, a recession, and and interests are so high that the zombie housle, corporate banks, shadow banks, government countries that are insolvent are gonna go bankrupt.

And they were built out twice during the GFC. During COVID wed high that ratios, but we had low that servicing racial because of zero rates on the short end, on the long end, and all the other policy of easy. Now he said into a session, where to raise rates because there is inflation. So those who were swimming naked as the tiger cid, you'll see where they were. Those who had the emperor without clothes, you'll see where they are.

And the zombies are gonna recognize. The zombies are gonna default. We're not gonna be able to build them out this time around. We'll have to raise rates, and they're gonna go bankrupt. Across the board. And I'm not saying everything and everybody in every country, but the amounts of debt private public across advanced economy and emerging market implies the severe debt crisis. Now, interest rates for the public sector are gonna rise. And in the UK with stupid fiscal policy,

those spreads widened in significant terms. But then the private sector has spread over a riskless rates. Right, you have spread over treasury mortgages. Hi held a great consumer loanlans on. So if you are an insolvent agent, uh, it's not gonna be just increasing long term interested on treasury. It's gonna increase your cost of servicing your debt, but they spread. Widening on your own private debt is going to cause another's reason for the fault. And already highiled right now

is gone from three hundred to over six hundred. The entire clo and leverage, your low market right now is shut down, literally shut down. And this is only the beginning of it of that stress on the private sector. So we're gonna see significant financial distress in the corporate sector, in the shadow banks, in parts of the household sector. So I mean, you just laid out basically the stuff that you think could break first as interest rates rise.

Where do you see other pockets of weakness? And I'm thinking specifically about some of the international developments, the impact of the stronger dollar. We've seen that way already on a number of emerging markets. You have taken out dollar denominated debt that's getting a lot more expensive as rates go up and the dollar strengthened. At the same time,

talk to us about the sort of international repercussions here. Well, the internationally percussions for emerging market is that many, not all of them, of these emerging markets are in deep, deep trouble. I don't want to lamp them together that are better credits, worse credits, better solving work. Sovereigns to you about forty countries, but I would say good two thirds of them are in trouble and then travel for

several reasons. One, interests arising US in advanced economies, so their interest rates and their spreads arising even more to their currencies are weakening as the dollar is strengthening. And unless you are a commodity exporter, mostly the guys in the Gulf were making a fortune everybody else among emerging markets. And to be, with your exception a commodity importer, especially in Asia, but also in other parts of the world, and therefore you have also in terms of trade shop,

so it's a it's a quadruple way. You have first of all, the rays of interstates in advanced economy pushing your interests higher. You have the weakending of your currency and you have a lot of dollar that and the real value goes higher. You have a negative terms of trade shock and the slowdown of growth and the recession US in Europe, in UK, in China. Effectively the be a recession weekends your export markets in your own economic growth.

So it's the perfect storm for the weakest emerging markets, and I would say a good two thirds of this emerging market right now have these types of economic and financial fragility. Now, if we're gonna have a recession in the US, it's gonna be even worse in Europe in my view, for several reasons. Reason number one, Europe is more exposed to the Russian energy shock, and it's gonna get worse this world and they'll be a total cutoff and natural gas. Secondly, the dollar is strong and that

reduces inflation. The eurous week that increases inflation. Inflation is already double gig in the Eurozone, let alone in the UK. Three, Europe is exposed to export to China and China is

slowing down very, very, very sharply. And for within the Eurozone, you have this fragmentation risks of the risk of a widening of spreads of the periphery that this new tool t p I. But if the new Italian government follows policies that are on a collision course with Europe, they're not gonna qualify for the bailout that the CP is gonna make for those that have unwarranted widening of their spreads. As as opposed to those that are warranted by poor

economic and physical policy. So things are going to be even worse in Europe that they are in the US. And the asket case, of course is the UK right now that is pricing like literally like an emerging market. Usually the fiscal stimulus in US, the dollar gets stronger, interested rise only little in the UK that the pound is collapsing and the interest rates are the roof, even with the support of the b o E. So it's

really becoming an emerging market, is there? You know? The way you describe things so much as already baked, in particular with these trends that are in place with g globalization and these shocks that we've seen, the all supply chains and then the accumulated debts that we've seen in public and private. At this point, are there better policy paths than what you expect, UH leader policymakers to take?

I mean, could there is there? What? What what is the wiggle rumor what is the what would what would you do? What would you advise policymakers and say the US and Europe to do well? You know, there's always a difference between normatives statements about how the world should be as opposed to positive statesmen about what is the

world that's gonna be and likely to. So I'm making for now positive statesmen about the fact that we're gonna have a nasty recession, nasty extractlation, and another severe financial crisis. I think that's the baseline, and I think that the policy trade off like during the GFC, is too late right now, because if you fight inflation, you'll have a recession and financial crisis. And if you don't fight inflation, you're gonna have the answer inflation and you get inflation

extaclation and still a financial crisis. Because you can wipe out with unexpected inflation the real value of nominal long duration that e fix interest rates. But you can fool all of the people some of the time, you can fool some of the people all of the time. You cannot fool all of the people all of the time. And if we use the inflation tax to wipe out private in public that is nominal long duration, it fixed

interest rates. That's gonna come to maturity, and then it's gonna reprice either at very high interest rates if you borrow a long term or if you borrow short term,

it's gonna price in the inflation. So you can for a couple of years resolve at that problem private and public with unexpected inflation, But then you're gonna cause a bigger that crisis because once prices replies for inflation, and the spreads real spreads a nominal spread, and the inflation volative leads you to higher nominal interest rates, then you

have a bigger that problem down the line. So I fear that right now we have three problems, a problem of inflation, a problem of growth, and a problem of financial stability with too much debt and collapsing asset bubbles, and you cannot resolve them. I could tell you what I would do in principle, but whatever you do is not gonna avoid a crisis. At this point, the margin

for action is very, very lim. I would tell you if I were you, I would avoid the seventies avoid inflation by going real hard on fighting inflation and avoiding at the anchoring of inflation expectation. But that's gonna lead to a nasty recession and a financial crisis like we didn't have in the seventies because we didn't have that problem, and the recession in that seventies was a decade longer stagnation. This time's gonna be worse because of the financial and

the dead problem. So unfortunately, at this point them if you do them, if you don't, there is no easy way out of this. So let me um, let me ask you basically the same question, but from a different perspective. What should investors do here? And this is something you know, this is something I've been thinking about recently, And one of our recent guests, Toby Ningle, came on the show. He was talking about the moves and the guilt market,

basically saying you can't unburned toast. So once you have this extreme volatility, once interest rates start to reset higher, you can't kind of undo that and all of that historic volatility, that anxiety for investors, it all weighs on them for years to come, and you potentially get a repricing of risk. In general, capital becomes more expensive, Asset prices start to deteriorate, as you just mentioned. So what

can investors do here? Well, Usually investors have some variant of a sixty formal for the portfolio sixty equity forty, fixed income, long duration treasuries or seven thirty or even rispirity labridge, water is a variant of the same, but usually the price of bonds that prices of equities are negatively correlated. In normal times, risk on equity the well bond on the well, risk of bond, the well equited on the well growth equity, the well bonds go up,

price falls, recession bonds fall, price goes up. Price of equity faults. So you're not only hedged. And a sixty four or seventy thirty portfolio has given you for the last few decades positive returns, normally more so in good times, less so in bad times, and always this here for the first time in thirty years, you have lost money on your equity side and on your fixed income because sixty fourth is based on low inflation. But when inflation

is rising, two things happen. Long term interests go higher. That hurts equity because the discounter factor for equity becomes higher, and we're seeing the correction of equity and growth stocks and text stops that are long duration hurt even more because their long duration assets and more sensitive to interest rates.

But you lost on the MP, but this year you have lost twenty or you on your own racial treasuries because tand your treasuries have gone up from one and a half to three and a half four, and that increasing interest rates is the twenty five fall enter price. So you lost money on equity, and you lost money even on the safe asset. There was nowhere to hide. And if you went into cash, you lost because of inflation. So that's the problem when you have rising inflation. That

sixty four doesn't work. What's the solution is not cash that's been given you zero nominal return wiped out by ten percent inflation. You have to go into assets that are hedged against inflation. One of them is tips the reprice when inflation is higher. The second one is very short duration treasuries because as interests go higher, the price of them falls much less than the one of a ten year or thirty year treasury. As interests are higher,

you get higher return even is expected inflation. That's one. Secondly, you might want to go into gold. Gold has not done very well in the last year. But once inflational expectations become an injin when the central banks are gonna blink, and until now central banks have played tough. That's why gold has done poorly. Because the real rates were going higher, then gold is gonna outperform like other precious metals, like probably many commodities, but the commodities are gonna be hurt

by the recession, so gold is actually less cyclical. Three. In the seventies, both equities and real estate did poorly, but equity did much worse than real estate. The peer ratio for SMP was down to eight. Because real estate is in fixed supply, you can often replace the rent, and it's a good hedge against inflation as long as

monetary policy is not very tight. Of course, ris deser have done poorly because the Fed was hiking, but again, when the Feds are gonna wimp out, I think that real estate is gonna outperform equities because of the nature of being a fixed supply kind of asset, at least in the short run. The only caveat is that a lot of real estate is going to be stranded because

of global climate change. Literally, there are maps that show that half of the US in the next twenty years is gonna be either underwater on the coastlines or too hot or droughts or wildfires to be living in it. And people have stupidly moved from New York to Miami and from San Francisco to Austin. But Florida is gonna be flooded and Texas gonna be too hard to survive there, so there left to be a massive migration from south

and the coastline towards. The only part of the US is going to survive climate change is the Midwest into essentially Canada. So there big trillions of dollars of real esti assets are gonna be damaged by essentially global climate change. So if you have to worry about that, you have to find the types of investment in the right parts of the United States. So I would say combination short term treasuries of tips and other inflation index bonds, gold, and the right type of real estate is going to

be the future. And I'm actually working on a financial product that is exactly creating first and index and then anytf along the lines of edging the risk of inflation in the basement of youth currency by having a combination dynamically optimize of disassets. That's something I'm going to be launching in the next month or so. Yeah, I remember talking to you about it earlier in the year. This idea of a sort of tokenized dollar that's more tied

to hard assets. Is that you know, this is also something we've discussed many times on the podcast at this point, the idea of the dollar losing its reserve currency status. And one of the things about that is, you know, people have been talking about it for a long time and it hasn't yet happened. What, in your opinion makes this time different several things. Of course, it's not gonna happen overnight. The shine of reserve currency status takes text

many years. But there are at least two factors. One is that the US is very large current account of physical deficits. The physical deficits and other advanced economies, but they tend to run current account surpluses or a balance while we have a twin deficits, and historically every time they had twin deficits and the dollar was too strong, you have a cycle of dollar going up and then has to go down in order to restore the excellal competiveness. And the fall of the dollar can be thirty on

a weight at the basis. So that's gonna be something that is going to happen, especially as the fat is gonna wimp out, while other central banks will have to start to tighten. Secondly, I think that the big revolution right now is that a change regime change is that we've weaponized the US dollar for national security and foreign policy purposes, and they might be the right thing to do.

We have to punish our enemies, whether as Russia or Korea, you run, or even China with trade and financial sanction because there is a geopolitical rivalry is gonna get worse. But they know right now, even the Chinese, that the dollar can be seized like they were seised in color Korea, in Iran and now in Russia. And not just the dollar, also the yen, the europe, the pound, the Swiss frank. So if you need another reserve currency, there is a

reserve currency or assets. There's no dollar, euro, yen, pound and so on, or frank which one is the only one out there that it's gonna be an alternative. They cannot be seized by the US or Europe or Japan. Is gold, but gold not in the volt in New York, New York, fred or London, by gold in your own vault or caves in Russia or China, wherever you have it. I think that that's gonna be what's gonna lead to

a sharp fall of the budge of the dollar. The strategic rival US have a plan to completely phase out their exposure to dollar assets, and that's gonna be a regime change for the long run as opposed to being a short term factor. It's gonna happen. I really saw. We might hear Urial make the case for bitcoin there, but I have basically just one last question. And you know bitcoin is another ship coin. No will break that out of a separate story. But it's gonna be gold.

There's gonna be tips, It's not gonna be a bit cocked frandly uh, last question for me. You know, investors are very big on this idea of like when is the FED gonna pivot? And the way you see it is not pivot per se, but essentially tri uncle whimp out. See what is that point? What would the will the FED see either in real economic activity or financial market conditions that you see would be the catalyst for the Fed and maybe other central bankers to whimp out, in

your words, what will it take? Well, the Bank of England already wimped out, and if you remember what happened in eighteen nine, in December of eighteen, the FED went from to twenty five to fifty. Then they said we're gonna go to three percent, We're gonna continue qt What happened during that quarter stock market collapsed by how you'll spread, go from three hundred nine hundred, and the entire see

a low levels land market shuts down. Two weeks later, January two or two thousand nineteen, J. Powell comes up and says, I was kidding when we said we're gonna go to three percent. I was kidding when I said we're gonna continue qute. We're gonna stop raising grades, We're gonna stop duty. And two months later, because there was a slowdown of growth given the tension within US and China on trade, and because there were some ripple problem

in the ripple market, what do they do? The caut rates from two and a half to one seventy five and they resumed two. It through the back door, through the reserve rep operation. This was for a mile mile financial shop and a group slow down. That's what they totally wimped out. They totally blinked, even the FED, let alone the BOE. So when they're gonna do it again, when the recession is gonna start, and it's gonna get ugly,

and it's part of the recession. Inflation is not gonna fall fast enough because we have the negative supply shop. Remember when you have negating supply shop to get a recession in high inflation. Therefore, we're not going to get a fault in inflation. This rapid enough to go to two percent. And we're already in financial stress right now. Stock market down simp NASA more than MIMI. Stock collapse, Stark collapse, crypto collapse, private equity collapse, Housing is collapsing.

See a lot markets shutdown, leverage, lot market shutdown. How you spreads are already six hundred plus. Even high grade is an interesting like you're nervousing in years and this is just the beginning of that pain. Wait until it's a real pain. And then you have even a major financial institution. They may crack globally, not in the US maybe now, but certain internationally there are a couple of firms are huge and systemic. They can go under. You

have to have another limit effect. Then the FED will have to wimp out. You'll have a severe recession and you'll have a financial market shock. They're gonna wimp out for sure. So, just to add to my anxiety levels, which are already through the roof, I want to I want to talk about the social consequences of this, because it seems like an environment where inflation is high, growth is slowing. You know, the FED is explicitly trying to

boost unemployment. It seems like that is probably the worst environment for you know, your average person on the street. And it almost seems like the FEDS, like the FEDS goals here, they're almost anti American at this point, or like anti the American dream right, like housing more expressive, crushing demand, crushing labor force, Like what are going to be the social consequences of central banks, you know, having to do this in order to put a cap on

price increases, Um, they're going to be severe. You know, we're already seeing, of course, the backlash against the free market, backlash against trade and globalization, even a backlash against technology, and backfish against you knows, fair policies. Because that it's doing a massive, massive increase in income and wealth and equality.

There's leading to populism of the extreme right and or of extreme left in many countries across the world, and authoritarian regions becoming more popular across the board is a repeat of the thirties. Literally, scary what's happening. And then if on the top of it to fight inflation, now you're gonna have very severe session and unemployment going to

six seven, eight percent or more. And then your assets are collapsing, the value of your home, the value of your stocks, and your debt service invasion going to go to the roof. There will be a revolution. That's why the fact cannot but monetize it because we're already having a huge amount of social tension. There's already massive political polarization. There already so many people are angry. Whether they're voting

for the right or the left, it doesn't matter. That are those who are left behind, those who have been screwed by globalization and the current sets of policies, those who don't have jobs and skills and income and wealth. You have, you know, one hundred thousand deaths of despair every year in the US from opioids and other drug over those you have two billion people that are addicted

to opioids. This is a massacre, literally a massacre. People are helpless, hopeless, jobless, skill less, worthless, and they're desperate. That's leading to that resentment and people either voting for on one side, Trump or right wing conspiracy types, or for very extreme left. These policies depending on whether you are socially and religiously conservative as opposed to liberal, but the economic policy are the same nativist nationalists against trade,

against migration, against free market, and so on. So it's gonna get more ugly. It's gonna get more ugly because we are ready at the breaking point. We could have literally in the US, as we know, the entire books written recently about the risk of civil war, violence, insurrection, secession. This is what is the reason that US is facing, let alone other countries, not maybe in the selection, but

two thousand and twenty four. So we're already in a re of time bomb in terms of social and political pressures, and in economic crisis, and a financial crisis and a geo political crisis is going to make these things much worse, much worse, alright, noriel Um, I think that's I can't say it's a good place to leave it, but it is definitely a place to leave it. We really appreciate you coming back on all thoughts. Um As I mentioned before, your insights, you know, broadly proved to turn out correct.

Um the last time we had you on the show. The book Mega Threats Tend Dangerous Trends that imperil Our Future and How to Survive Them is out on October eight. Thanks so much, no real, thanks for great Thanks again, Thank you, buddy. So Joe, I think I need therapy after that conversation. And you know, last time we spoke to Neurial, we had a lot of commentators who were like shocked that we were so shocked by what he was saying. But I gotta I'm trying to use humor

to diffuse the situation. Yeah, he sounds bearish, Yeah, you think just a little. He said that it doesn't make me want to buy the dip. No, but I do think, like, you know, this is what we've been talking about for a long time. The economic mix this time does seem different. Like at a minimum, inflation is a constraint on the central bank, and it's going to be much more difficult for them to come in and stabilize financial markets, um stimulate the economy if they need to, if they're having

to deal with that price constraint. You know something, I keep thinking about how much this environment is sort of the mirror image of the Great Financial Crisis. You know, coming out of the the GFC, we had terrible growth. There's big collapsed and deflation. Everyone was worried about we can't hit the two percent target. And then years of sort of basically a decade of moderate growth in the economy, and this time we had the crisis conicide with a

stock market surge and a growth surge. So maybe it is maybe the maybe the mirror image is the long, ugly slog for current crisis. I don't know something to look forward to, something to look for, so many episodes to come. All right, shall we leave it there? Let's leave it there? Okay, this has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway and I'm Joe Why Isn't All? You can follow me on Twitter at the Stalwart.

Follow our guest on Twitter, Neuriel Rubini. He's at Neuriel. Follow our producer Carmen Rodriguez at Carmen armand, and check out all of our podcasts Bloomberg under the handle at podcasts. Thanks for listening to