Nouriel Roubini Sees A Bad Recovery, Then Inflation, Then A Depression

the U something like that. I mean anything that doesn't isn't premised on there being some sort of snap by. Also, maybe just the eye just as straight letter down, they just never never comes back. I suppose that's a possibility to that people don't talk about. I'm glad you said I so, I actually hadn't heard that many people talking about this letter. But yes, there is an eye shaped economic recovery which is a straight line going down. So it's really not an economic recovery at all. And um,

it's probably the most parish of all the forecast. And the person we're going to speak to today is someone who has written about that. I possibility yes, so, um, I'm looking forward to our talk today. It's someone who's going to be very well known to our audience who in the past, and I don't even know if it's rightly or wrongly. I'm not even sure where he uh if he always embraced the nickname, but nonetheless his nickname doctor Doom became many people would have heard it during

the last crisis. Yeah, and I think as soon as you say the name doctor Doom, everyone knows who we're going to be talking about. But it's Neureal Rubini, the chairman of Rubini Macro Associates, and he's known well, he's known for forecasting the previous financial crisis back in two thousand eight, but he's also known for pretty bearish prognostications. And uh, it's been very parish of late, has it not. Things have not been great, So I guess I would

say that that is a safe call. Alright, understatement of the year. Okay, Well, without further ado, then let's bring on neur Real Rubini. Neurial, it's so great to have you, thanks so much for coming on the show. Great to being with you today. It's a pleasure, so Neurial, Joe and I were sort of joking just then, But you do have the Doctor Doom moniker. Do you feel I guess vindicated isn't the right word given current events, But do you feel that you are living up to that

doom reputation? Well, usually I say that I'm doctor really is not Dr Doom. If you look at the last decades, I have not been negative all the time. Whether a risk of episodes, I pointed them out. When there was economic and market recovery, I pointed it out as well. So it's not as if I'm permanently at perma bear. I think that would be a mischaracterization of my views. Um, so call me Dr Realists. Something I'm curious about is,

you know, we see these economists forecast right now. They're like, okay, Q two GDP is going to plunge, and then maybe we'll have a small recovery in Q three, and then maybe we'll have a real bust recovery keyboard, whatever it is, How do you go about the process of making a

recovery forecast? How does anyone while separating them that recovery from the policy response, Because of course we got the Cars Act at the end of March, and that probably helps slow down the crash somewhat, But it seems hard to make any sort of forecas usked about Q four or Q one of next year without having of you on how robust uh the policy response from both the Fed and fiscal authorities will continue to be throughout the

course of this year. Well, usually when there is a recession, it's very hard to make a forecast about the length of it, and the shape of the recovery by definition, is a change in regime, and even traditional economic forecasting models essentially break down because those models don't tend to

predict recessions. So once you are in a recession or financial crisis, you have to ask yourself in a more i would say qualitative way rather than a quantitative one, what is going to be in the shape of the economic recovery. So, for example, you know, I wrote a recent paper with my global economic outlook with my research colleagues, and we argued that there are three scenarios. One is what we call the greater recession will be more like a YOU shape coovery. Second one is a downside scenario

quality depression as shaped. And then there is a upside scenario of a V shape recovery. Now, markets for the last few weeks, especially US equities, seem to be pricing a V shaped recovery in that paper, and a lot of time to go on every point of it. But we present about fourteen separate factors why we believe that the recover is going to be YOU shaped rather than V shaped. Now, those predictions are not based on a formal econometric models, because by definition those forecasting models are

useless when we are in the depth of recession. But you're trying to understand what's going to be the economic dynamic of the behavior of the private sector, households and corporates, what's going to be the policy response, And of course any prediction you make on the shape of the recovery

of economies and markets depends on the policy response. We know a lot of the policy response, how strong it has been in the United States, are strong, but not as strong in Europe and Japan more constraining emerging markets.

So an economic forecast, of course makes also predictions about the policy pat monetary policy, fiscal policy, credit policy, regulatory policy in this case of course help policy, because we have to decide how fast or how slowly to reopen and you feed that one into your essentially model in terms of predicting the shape of the recovery. So certainly the shape of the recovery is not independent from the policy response, and you can make sense of that policy response.

We we're already front loaded in one month in terms of unconventional amountary fiscal policy. What it took about three

years during the global financial crisis to occur. The entire tool kit of unconventional tools that affect created between two thousand and seven thousand and nine have been redeployed in less than amounts because were there and they were available, and they made the decision of of going in front clothing and they created even new ones, like, for example, purchasing corporate bonds is something that the fact did not do during the global financial crisis, And not only the

started to purchase high grade investment grade, but they've also now gone into willingness to purchase hid something they might do is very risky, but changes completely, for example, the dynamic of the recovery of spread products, including corporate bonds high grade than yield. I want to dig into the central pink response, but before we do, if we zoom in on the US and talk about your forecast, which is this U shaped recovery sort of length the road

back to economic health. What do you think is the biggest factor in driving that scenario. Is it health policy or is it economic and monetary policy? I guess another way of asking that question is whether or not economic

and monetary policy can fully offset the impact of the coronavirus. Well, I do take the policy respond as being very aggressive both monetary credit and physical and that everything else equal is positive for making sure that this recession is only two quarters Q and and Q two and then there

is a recovery. But I think that there are many factors that lead me to essentially express the view that my baseline said sixty percent probability is a U shaped recovery, and I signed only a twenty percent probability to the V shaped recovery of the economy. The markets is a different story. I think the main factors that would point out are that on the health side, we know there's

going to be a second wave. The second wave could occur already in July and August, depending on how fast we reopen, and there is a temptation to reopen to fast Cyconly, there will be another second wave or a third wave in the winter when we are not going to get a vaccine, and when the cold weather comes back,

we're gonna have it again. How severe is going to be, we don't know, but we don't we know there's not gonna be a vaccine by then, and depending on how much we flattered the curve, it could be severe or less severe. But I think that the fundamental reason why I believe it's going to be you is that you have two critical agents in the economy in the private sector, households and corporations, and both of them are going to

be stressed. The household sector is going to be in a situation which is effectively millions of people that have lost jobs. Even when there is a reopening, many of them are not going to regain their jobs, or if there again, their jobs are going to be part time jobs, in formal workers, gig workers, contractors, so their income generation is going to be much weaker. So you have consumers that are one shell shocked, two they're still scared of

the virus. Three their income challenged for their asset crashed. Five their burden with a huge amount of that mortgages, auto loans, student loans, consumer loans, credit cards, and anybody sensible should be more precautionary in their consumption and saving behavior. Right, there will be a massive increase in a precautionary savings for any level of income. And your income is going to be certain lower than before. So you have lower income,

you spend less, you save more. Why do you save more because you know of us households allegedly have less than four hundred dollars of cash in the case of an emergency. So after what has happened, with the risk of another shock coming from the corona, you're losing your job,

not regaining it. Better safe rather than sorry. So I expect that the savings rate of the household sector is going to be sharply up, and the investment of the household sector, what's investment for household is purchases of homes is going to be sharply down. Moved you own to buy a home, you know, even with the lower mortgage rates, and your credit score is going to be worse. So you have higher saving your lower investment for households. Same

story for the corporate sector. The corporate sector, as we know, was highly leveraged, leverage rational we have not seen in the last forty years. For the corporate sector. This is an accident waiting to happen, and every corporate will have to survive reduce leverage. How you survive by reducing leverage by cutting costs, labor costs and other costs. So you have to increase your saving rate and you have to cut on your capax option value of waiting. Right, there's

a lot of capacity. You don't know how recovery is going to be, so you're gonna have an increasing savings of the corporate reduction of capax. So the financial balances of both households and corporates is the difference between their

savings and the investment. And they're going to improve improve because they have to save more and they have to cut spending on capax on residential While that's individually rational in equilibrium, higher saving and lower investment means that depressed economic recovery, even if the physical authority and even the monitory authority are doing monitoring physical stamuls. So you have one positive coming from the policy, but the deleveraging thes

to curve in the private sector leads you to this thing. Now, during the global financial crisis, the households were highly leveraged, and that this deleveraging. But the corporates were not as leverage this time around. With high leverage of corporate and high leverage of households, so both of them have to be leveraged by increasing savings reducing investment. That's a recipe for a you shaped recovery. There are many other factors,

but that's a key argument. But why it's going to be a you rather than a V And I think it makes a compelling argument when you talk about sort of the quasitive behavioral ramifications of this. So households will have just watched their incomes vanish at a shocking speed,

same with corporate revenues. Are there other periods in the past, either specific economic events in US or global history, that show how sudden shocks to the economy leave lasting changes in business or household inclination to in to spend well. The difference between this recession and all the other ones is that even the Global Financial Crisis, even the Great

Depression were slow motion train wreck. It took three years for output to fall this match for an employmenty to go these up, for stock market to fall, fift for credit spreads to rise you know at you know, double digit levels and so on and so on. This kind of a shock instead is like an asteroid hitting Planet Heard and not just one country but the entire world and shutting down economic activities. So we have never had this experiment. We've had experiments, of course, of asolated cases.

There is a hurricane, you know, in Puerto Rico or in somewhere in the Caribbean, or a major natural disaster. Of course you have that shock limited to that particular you know, region of the world or town or whatever, and you have those dynamics of course of a massive shock that this economic and financial and otherwise. But this is something that's pretty much Planet Heard, so it's very different.

But even if it's different, you can make inferences intelligently based on economic behavior and the dynamic of what's happening to income, to jobs and so on. They're gonna lead you to understand what's the shape of the recovery. I mean, there was already after the global financials, an example, a tendency for firms not to hire full time workers with full benefits right those jobs were gradually going away. Was all gig workers, part time workers, contractors, freelancers, our workers,

and so on and so on. Given the shock has occurred, right now, we know that twenty six billion Americans have lost their jobs. Probably at the peak is going to be more like thirty five million people. These people are not going to get their jobs back. I mean, I live in New York City. Take anybody who worked in a restaurant or in hospitality and so on. Even when you reopen a restaurant, you'll be back in in rent by three months, four months. You have to pay back.

They're not going to cancel it. You'll have to have every other table empty for security. And these restaurants live on a margin of you know, five time percent. There is no way half of the old restaurants in New York are gonna be gone for good. Half of the retail stores in New York and will be gone for good. Even if there is a reopening of these things, the opening means nothing. There was an article yesterday in the Financial Time saying that they reopened all the shops in Berlin.

By the way, in Germany they heat too. Income has been much less because we're not firing everybody. That this system of sharing, right, so you have not had mass unemployment. So the stores are open and nobody's going there because everybody's scared and everybody's worried about their future. It was gonna buy a car, who's gonna buy a home, Who's gonna take a vacation, Who's gonna go on an airplane, who's gonna take a cruise? I mean, these are changes

that regardless of where they opened. A close a store, or an airplane or a cruise ship are going to change behavior. The issue is not whether we reopen, but once we're reopened, whether they're gonna show up. In my view, most people are not gonna show up. What does that imply for inflation? Because on the one hand, you have people who are probably saving more and spending less you

put it. But on the other hand, you have central banks who are sort of throwing the kitchen sink and everything right now, and some people are even talking about debt monetization. So how do you see net net inflation

shaping up? Well, last November, before this crisis even was on the horizon, I wrote a long paper saying, if and when the next recession will occur, monetary and physical policy is going to become even more unconventional and I said, effectively, we're gonna have a monetization of large physical deficits, what people call otherwise modern monetary theory melicopter drop of money or people's kew ee, or the new euphemism that people

like Bernanco Stan Fisher uses coordination of monetary physical policies. So what's clear that once a recession occurs, policymaker cannot sit there doing nothing, pretending they don't have the policy bullets. And we're seeing it. We've had now budget deficit in the US are going to be twenty of GDP, and

the FACT is saying unlimited qui. And this morning the BJ is saying unlimited qui, and the c B is not yet saying unlimited qui, but they're gonna soon be a unlimited Q. So you have massive monetization of physical deficits. So we're going even more unconventional now. In the short run, this shock is a recessionary and is leading to deflation because while there is a supply shock, the shock to

agree with the man is bigger. And then you have a massive slack in goods market, tons of capacity machines that are not working, and tons of people, tens of millions who are not working, so that is deflationary in the short run, and therefore monetizing physical deficit prevents one

economic depression to prevent a deflation from setting in. However, the point that I've made in that paper and is repeated now is that over time, I fear that the one of the medium term consequences of these crisis is gonna be permanent negative supply shocks. We're gonna have more the globalization. We're gonna have more decap litween US and China, with more melchanization of global supply chains because they're not

safe if they're all conspted on on. China will have more fragmentation of the global economy with more populist parties in power say I'm going to protect my workers, my firms. So more protection is more tariffs, more restriction to trade in goods, in services, in capital, in labor, in technology and data and information. That's a negative supply shock that over time reduces potential growth and reduces actual output. It's like the negative all shocks that we had in the nineties, seventies,

seventies seventy nine. Think of it as a negative supply shock that reduces potential growth and increases cost of production. Now what happened in the seventh is when we're did to all shocks, we monetize them. Monetary policy was done a curve and we physicalize them. But the extent, by the way of those physical stabulus and monetary stabulus was limited compared to today, where we're running budget deficit of

twenty of GDP and we're fully monetizing with QUI. At that time you were just behind the curve in terms of monetary policy. You're not that negative policy rate's let along QUI. So the extent of the monethor and physical

stabulus is ten order of magnitude bigger than the seventies. Now, you throw monetize physical deficits in an economy where over time you have negative supply shocks, and then you end up with not stagged deflation like today's stagnation and deflation when you get with stagflation that occurred in the seventies, where effectively, when you monetize physical deaths were negative supply shock, you get inflation and recession over time. Now, this is

not a story for two thousand and twenty. It may not even be a story for two thousand and twenty one. But I do believe that the policies over the medium term are going to lead us back to start the nation. And once you're in start deflation, then you're in a nightmare because you have a negative growth and you have inflation. When you have started deflation, recession and deflation, it's easy. You have to stimulate the column to get you out of a recession and out of a deflation, So you

need to do montor physical stimulus. Once you have inflation together with economic stagnation, then you have a problem because you can of these monetary policy if you care about inflation. So we're gonna get there, but it's gonna take two or three years. So we've basically seen for decades now arguably, so it's the very early eighties and Vulcar era, the sort of gradual opening up of the global economy, expanding supply,

liberalizing policy, etcetera. And this is the moment to something that it reverses all those trends about forty years to some extent. What this this virus and the aftermath will

will finally be the reversal of the nerview. Well, the reversal started to occur after the global financial crisis, because the era of hyper globalization started either in nineteen seventy nine when then shall being opened up China, or nineteen eighty nine, when, of course the Berlin Wall collapse and the Outer Court and collapse and the opening up of Russia, Soviet Union and Eastern Central Europe. So we had four decades of globalization, more trading goods, in services, in capital

and labor, technology, data information, you name it. We reach peak globalization in my view, already ten years ago because after the global financial crisis there was a slowdown of global trade. There was the beginning of protectionist policies or inward oriented policies. So peak globalization probably already ten years ago. By certainly these crisis implies much more diglobalization, much more

decoupling within US and China. The cold world is going to become colder than two city trap is gonna get worse whatever, total balkanization of global supply chains first in technology than manufacturing, than in services. You know, you cannot rely anymore on China. You have to reach shore. And by the way, if you reach shore economic activity, you're not going to create jobs because you're restoring economic activity from places where costs are low, say China and Asia,

two places where labor costs are high. So it's gonna lead either to use more gig workers and pay them nothing, or to use machines. So the process of automation and robotization is going to accelerate, so we'll have more activity in the US is going to help. Capital is gonna still screw labor like it has for the last decades.

So these trends are gonna get worse. But certainly is a world in which will have more restriction to everything, and even supply of safe supply chains of food are gonna be disrupted globally because every country says, hey, I want to keep my food for myself in case coronavirus comes back. Well, have restriction to exportation of food. Of course, we'll have restriction to exportation of pharma products and medical equipment.

Everybody's gonna want to keep it for themselves. And we of course have given the tech war between US and China. The entire text sector is going to the couple, and we'll have a splinter night, and we'll have two completely system for tech and internet and five G and you name it going ahead. So there'll be massive Balkanization of the global economy. That's a massive negative supply shock the permanently reduces potential growth and is eventually given them North

and fiscal policy stactulation ary over time. M hm. So, one of the things that always strikes me whenever I read your work or listen to you talk on TV or the radio or podcast like this UM is your sort of um specificity of your four cats, as well as your confidence in making them. I'm just wondering, in the current situation, is there anything that's surprised you or that you weren't expecting to happen. Well, initially, of course, the free fall in economic activity take took even me

by surprise. You know, at the beginning was not a you, was not a V, was not even an L, was a I. Literally free fall. The collapse of output, employment, consumption, investment, export, imports, pretty much every component of AGGREITHM and aggree supply was

like a free fall. And you know, even Morgan, Stanley, JP Morgan and Goldman sachs now saying into two the contractional output in US, for example, at the annual rate is gonna between thirty five and all rate right, So so everybody was taken one by the free fall because we're not seeing the shocks of this sort of sudden stop where everything shuts down. In any typical financial crisis or economic crisis, you have a you know, a build

up of the economic downturn. But it's lawing gradual. As I said, what happened in the past, even in the Great Depression in three years or during the global financial crisis, this time around has according three three weeks. The other aspect that has been partially surprising but not totally surprising to me has been the policy response. But as I said, I wrote last November that when the next recession is going to occur, we're not going to do the typical

zero rate negative rates. A little of que liadle of credit is a little of forward guidance. We're gonna go full Monty on helicopter drop of money. And by the way, what's the difference between having helicopter drop of money and full direct monetization of physical deficits and having large deficits plut QWI. The only difference between the two is when you do QUEI, you buy the bounds in the second

diary market. Well, when you do direct monetization. You're buying them in the primary market, right, But that's a big lift. The impact on long rates and financial condition is exactly the same. Who cares whether you're buying the bonds, uh, you know, directly from the government or the government issues them and a week later, literally the fat purchases bonds at the rate of a d billions per week. It's just the same thing, just a big lift to say

it's not direct modization, it is direct montization. You just wait a week rather waiting one hour. It's just the same thing. Right, let's call the call it euphemistically coordination of monetor in physical policy. It's a joke. Not coordinational amount of fiscal policy. It's fiscal dominance. And the Central Plank has no option, given the death of twenty GDP but fully to monetize it. Because if they were not monetizing them, you know ten, your treasuries would not be

at zero point six. There will be a two or three percent that would happen. So there have no option with the death of GDP to fully buy the entire stock of new bonds issued by the treasury. That's what's happening in the US. That's what's happened in Japan, That's what's happened in Europe. That's just happening in all advanced economies. Now, emerging market is a different story. In emerging markets humanitize physical dias in to this extent, you end up in

hyper inflation like Zimbabwe, like Argentina, like Venezuela. Luckily, in advanced economies, web some modicum of policy credibility left and we're not going to end up into high inflation or iper inflation. But over the next few years we may see inflation rise from the current very low levels to higher levels. That can happen in the presence of the globalization and the supply shots. Now I want to ask you a little bit about the sort of pre crisis here.

You mentioned corporate leverage, was high household leverage as well, you know, after the last after the Great Financial Crisis, and you look back at two two sexes obvious all kinds of risks suppose related to housing. Was the economy inherently fragile pre crisis? I mean, we talked about this incredible crash, the speed of which literally everyone by surprise. Does that mean that the economy must have had weak foundations?

Going into this or is it just like we turned off the economy due to public health risk and this

is what was going to happen. How much does the current crisis sort of indict the stability of the pre crisis ecount, Well, there were plenty of fragilities even before this crisis occurred, you know, after the global financial crisis, in spite of the talk about the great deleveraging, very little deleveraging occurred because, of course, as we know, public deficits and that wrote significantly both in advanced economies and emerging markets, and also private debts remain high or they increased.

In the case of the U S. There was partial deleveraging of the household sector, but the de leveraging did not occur through massive increase in savings. Occurred only because lots of people defaulted on their mortgages and personal loans and eventually that that were used. But there was a massive real leveraging of the corporate sector, right whether it was you know, clos leverage loans, massive issuance of junk bones, a trillion dollar of fallen angels in a high grade

they're not going to be done graded. All these share buy backs that implied a complete change in the capital structure of most firms with less equity and more capital is a way of boosting earnings per share and evaluation. So the levels of corporate debt and people have been writing it for the last year. Even the FED recently was saying, we're worried about the build up of corporate debt. So this is an accident waiting to happen because the

corporate were leverage like never before in history. You know, my colleague at alt Man who's the expert of corporate default, and the writting about years about the build up of corporate debt and lots of other people did. And in the case of the household sector, the death levels were not much lower, They did not increase, but they were may and iye. What change was that during the last decade, private and public debts were higher. Domestic and foreign debts

were higher. In the private sector, debts of houses of corporates, even of the shadow banking system were higher. But given near zero policy rates and given very low long rates, that servicing ratios were very low. Right, that ratio were not low. What made the system sustainable was that we had zero rates, if not negative and were long. Rates were extremely low all over the world in advanced economies, and therefore there was a false sense of security because

that servicing ratio where a historical law. But you know, once the crisis occurs and credit spread blow up, even if safe assets like treasury boons and gerbis can go even lower, if the spreads for corporate debt or household or credit cards or r m B s S or you name it go through the roof, then you can have had that crisis even with the yield on safe bonds being close to zero, if not negative, because it's credit spreads are blowing up. And that's what is happening

right now now this time around. One of the new changes is happening is that not only at the V shaped recovery of US acuity, the other V shaped recovery has occurd for developed markets. Spread products are n BSS, money bonds, high yield, high grade and so on. What explains it. It explains it the fact that the FED, the CB, and now the BOJ have decided to vary aggressively by not just government bonds but also to buy

corporate bonds. Now the bo J and e c B were already buying for the last few years corporate bonds. But say the d J today announced they're gonna triple the amount of corporate bonds and commercial paper that are buying. But for the freed is a new to buy corporate bonds, and as long as they're buying a high grade investment grade,

it was okay. But once they decided to go and buy even fallen angels that have been downgraded from three or B minals to somewhere in the double B range, and when they decided to buy even how yield, the f tfs that the FAT is going into totally uncharted and dangerous territory because you're really buying stuff that is highly risky first of all, and you're creating a huge amount of moral hazard, and you're not allowing the necessary

the leveraging that has to occur among leverage firms. They're gonna kick the count down the road if you're aggressively

trying to narrow the spreads, especially for our yield. So to me, that's a mistake is again making sure that zombie companies, zombie financial institutions, zombie households are gonna stay alive on life support where they should be allowed to default and restructure, and they both financial and operational restructurally, so we're gonna pay the price for that particular policy. I think that everything else the FAT is doing maybe right, but moving into the space of buying a highly risky

junk bonds, I think it's crazy. It's utterly crazy. Just on the policy question. Is that the one thing that you would do differently if if you were in charge of the policy response here. So for instance, if you were, you know, either in the US administration or Chairman of the third or something like that, what would you be

doing in response to the economic downturn that we're seeing. Well, as I said, the idea that you're gonna run large budget deficit, that you're gonna monetize them, it's the right response in the short run. I worry about the overrang of the balance sheet of central banks, and they're not gonna be able to run them down because if they run them down, there is a dead crisis. Think of it.

Even the FED started quantitative tightening in two thousand and seventeen, but in the fourth quarter of eighteen, when you adjust the minor blip, you know, stock markinging down big dealing you four after going by January one, Power said Okay, I was kidding. I'm not going to continue quty and I'm not gonna raise rates until are gonna stop. And then three months later he said, okay, we're gonna start cutting rates and we're gonna start doing new ripples, a

new open market operations to increase the balance sheet. So well before even this crisis occurred, the Fed realized we cannot run down the balance sheet. They try to do it. Then the market shop in Q four of eighteen, and what happened last year led them to just change and completely increase the balance sheet even before this crisis occurred. And now that the crisis occurred, the balance sheet is

gonna not double, but probably triple. And there's not even a sense of whether we're gonna start when we're gonna even start raising policy of it's above zero, let alone run down the balance sheet. In the case of Europe, they quantity of tightening never started. They stopped quei and

now they've resumed it. In the case of Japan, they never stopped their quei qui always continued, and now they're ramping it up to infinite ap out right, whatever it takes, like the FED has done so these balance sheets are never gonna go down, and eventually that type of a financial overhang initially leads to asset inflation and asset bubbles.

Then eventually it leads also to good inflation. Did not happen during the last decade because during the last decade, with positive supply shocks, with continuation of globalization and technology in the next decade whatever reversal of globalization, and that the even restriction to what technology can do, because while technology is gonna continue to grow, there will be massive restriction to the diffusion of technology because of national security technology.

The TACH sector is going to become a critical component of the national security industrial complex and it's going to be restricted. So we'll have two major forces gonna lead to negative supply shocks rather than positive one. At the time, we're doing monetization and physicalization of death icit in an order of magnitude of the three or four times bigger than what we did after the global financial crisis. That eventually leads to asset and credit bubbles and then a

buston and crush, and it leads even to starculation over time. Again, it's not a prediction for this year and next year. But for the medium term. My view, by the way, is that this decade there will be a coming global depression. This is not the short term prediction for two thousand and twenty, but I believe there are at least ten forces that gonna lead to the coming great depression of the two thousand and twenties, not two and two and twenties.

The coming decade, there will be a global depression in the global economy because there are forces and trends and risks and imbalances that they were created but the global financial crisis they were never resolved. Another outcome this time around with a vengeance, and all of these ten negative trends are being exacerbated by the coronavirus crisis. I don't know if I have time to discuss all of them. I'm writing a new book about the subject, about the

common depression of passion in twenties. But there is essentially ten global forces are going to lead us to a great depression in the next second. That's my view. So in the short run, we avoid that great depression this year. My baseline is a U shaped recovery, is not a depression. But over time I believe we're gonna face a great depression, Norrio. You're certainly living up to your doctor doom Moniker there.

But I have one final question. So, prior to the crisis, one good thing is that we truly had something that resembled some wage growth. We had very low unemployment, the spread between say, the unemployment in this country among educated white people versus minority group different minority groups that started to come in. Genuinely positive things that were coming about through the long expansion obliterated overnight. What would be a model towards getting back to that point that would be

more sustainable? In your view, if what we so was all these sort of un unresolved imbalances, how can we get how can we return to what seemed like some very positive societal trends in a way that doesn't involve and lost bubbles. Well, you know, I would take partial issue with your characterization of how well was the situation of labor, because you know, the share of labor had been falling for a decade and was falling. The share of profits was rising in GDP. That's why you had

outside returns. And yes, people had jobs, but most of these jobs were low wages. Yeah, wage gold was picking up slightly but was not really robust, and many people had jobs that had essentially no benefits because many of them became gig workers or part time workers, or contractors or freelancers or hourly workers and so on and so on. You know, forty percent of Americans did not have more than four hundred dollars savings in case of an emergency.

So those people that were left behind. And they said Trump was talking about an American carnage when he was elected. I think for most people there is still an American carnage. You know, there are eighty tho people today every year in the US they die from an opioid overdose. And that number is not fallen as following by an epsilon. Why do they die of this stuff because they are

totally socially economically desperate. That what leads to the opioid academic you're looking at any measure of social kind of success or whatever not, it still is. It is an

American carnage. People have jobs, but they are you know then burger flipping jobs, the lower jobs, the temporary jobs that have no benefits, having millions of younger millennials having to do three or four times for different gig jobs and not being paid enough and not having any benefits is no is no kind of panasia of any sort, So I do believe it. Actually, the situation for labor

was extremely fragile. Of course, after a decade of a recovery, you had an employment rate gone from ten percent to three point five. We created twenty two billion jobs, but guess not in four weeks the entire jobs have been created in ten years that are gone twenty six million,

and I think it's gonna be thirty five. And ask yourself, if you took a decade, ten years of an anemic recovery with something happening, for creating twenty two million jobs, how many years is gonna take us to essentially reduced unemployment rate from thirty six million new people without jobs back to normal. It's gonna take a decade, it's gonna take two decades. What's gonna take? So honestly, labor is screwed, was always screwed, is now screwed more than before, and

it's gonna be a nightmare. Okay, Well, on that um optimistic note, I think we're gonna leave it therenurial. Thank you so much for coming on, and I know, you call yourself d your realist, but you're painting a pretty uh pretty depressing picture of the future. But thank you you appreciate it. I'm all I'm wrong. I feel I'm gonna be right. I won't play. Thanks for that was great. Thank you so Joe. I'm just trying to think all

the all the ground we just covered. We had a great depression, food shortages, the end of globalization, a new Cold war, uh, stagflation, you go on. But like pretty much every bad scenario was touched upon. So that was fun Yeah, you know, it's funny because like I you know, when I set it up the intro when we were talking, I was like, oh, they called doctor Doom, but I'm not sure if he really is a doctor Doom. Maybe that was just sort of like I think people called him.

He's very negative, like he really you know. What the interesting thing is is that, um, you know, there's a lot of like there's sort of like perma beare uh types out there, Like there's other people. In fact, I think there's like ten people at the nickname doctor Doom, but a lot of them are like they sort of like hardcore gold types. He's not really one of them so much. No, No, actually, yeah, we should have asked him. I guess we should have asked him where he'd be

putting his money at this point in time. I would have been interested in that. But but it was really fascinating to hear him talk about a permanent behavioral change for people and consumers. Well, it's also sort of interesting too, because there is a lot of talk about permanent behavioral change, and it's worth sort of disentangling what is the permanent

behavioral change due to the health crisis. So, Okay, maybe some people are gonna avoid different kinds of leisure, or they're you know, they're gonna want more space between them and the next person that arrests run versus the permanent behavioral change that results from saying your income vanish in a minute or visiting the revenue vanish in a minute. So it'll be interroding because there's really two sorts of things that are simultaneously unprecedented in this crisis that could

leave lasting scars. Yeah, I guess we'll have to have a Rubini on in well a couple of years to to talk about those changes and also see whether or not that that stagflation idea has come to fruition. The stagflation thing is particularly interesting because you do get more people who had never really been believers in the inflation thesis starting to come around, essentially because of some version of the permanent change of the supply global trade landscape

that he described. It feels like if there is going to be a moment where some of the inflation predictions could start to come to fruition, it's that combination of deglobalization and aggressive stimulus that could theoretically do it. Yeah, definitely an interesting one to watch. All right, Uh, shall we leave it there? Let's leave it there? All right, Well, this has been another depressing episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at

Tracy Alloway. Uh, and I'm Joe Wisn't all. You can follow me on Twitter at a Stalwart. And you should follow our guest on Twitter. Nuriel Roubini. He's at Neuriel. Be sure to follow our producer on Twitter, Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg head of podcast, Francesco Leavi at Francesca Today, as well as all the Bloomberg podcasts, Onto the handle at podcasts, Thanks for listening. T