He predicted the 2008 financial crash. Now, he warns of a “long, bad” recession.

Roubini’s foresight on the collapse of the housing bubble from 2007 to 2008 earned him the nickname of DrDoom.

Economist Nouriel Roubini, who correctly predicted the 2008 financial crisis, sees a “long and bad” recession in the US and taking place globally at the end of 2022 that could last all of 2023 and a sharp correction of the S&P 500.

“Even in a simple recession, the S&P 500 can drop by 30%,” said Roubini, president and chief executive officer of Roubini Macro Associates, in an interview Monday. In “a real hard landing”, which he expects, it could drop by 40%.

Roubini, whose foresight about the 2007-2008 housing bubble collapse earned him the nickname Dr Doom, said those expecting a low recession in the United States should look to the large corporate and government debt ratios. As rates and debt service costs rise, “many zombie institutions, zombie families, businesses, banks, shadow banks and zombie countries will die,” he said. “So we’ll see who swims naked.”

Roubini, who has warned through bull and bear markets that global debt levels will drag stocks lower, said reaching a 2% inflation rate without a hard landing will be “mission impossible” for the Federal Reserve. He expects a rate hike of 75 basis points at the current meeting and 50 basis points in both November and December. This would bring the Fed funds rate by the end of the year to be between 4% and 4.25%.

However, persistent inflation, especially in wages and the services sector, will mean the Fed “probably will have no choice” but to increase further, he said, with fund rates approaching 5%. Furthermore, negative supply shocks stemming from the pandemic, the Russia-Ukraine conflict and China’s zero tolerance Covid policy will lead to higher costs and lower economic growth. This will make it difficult for the Fed’s current “growth recession” target – a prolonged period of low growth and rising unemployment to stem inflation.

Once the world is in recession, Roubini does not expect fiscal stimulus remedies as governments with too much debt are “running out of fiscal bullets”. High inflation would also mean that “if you do a fiscal stimulus, you are overheating aggregate demand”.

As a result, Roubini sees a stagflation as in the 1970s and a massive debt crisis as in the global financial crisis.

“It’s not going to be a short and shallow recession, it’s going to be severe, long and bad,” he said.

Roubini predicts the US and global recession will last through 2023, depending on how severe the supply shocks and financial hardships are. During the 2008 crisis, families and banks suffered the hardest blows. This time, he said that companies and shadow banks, such as hedge funds, private equity and credit funds, “will be about to implode.”

In Roubini’s new book, Megathreats, he identifies 11 negative medium-term supply shocks that reduce potential growth by increasing the cost of production. These include deglobalization and protectionism, the transfer of manufacturing from China and Asia to Europe and the United States, population aging in advanced economies and emerging markets, migration restrictions, decoupling between the United States and China, global climate change and recurring pandemics.

“It’s only a matter of time before the next bad pandemic arrives,” he said.

His advice for investors: “You need to be light on stocks and have more liquidity”. Although liquidity is eroded by inflation, its face value remains at zero, “while stocks and other assets can fall by 10 percent, 20 percent, 30 percent.” In fixed income, he recommends staying away from long-dated bonds and adding inflation protection from short-term treasuries or inflation-linked bonds such as TIPS.

(Except for the title, this story was not edited by the NDTV staff and is posted by a syndicated feed.)