Global economic forecasts

Something Biblical Is Approaching

  • Tuomas Malinen, GNS Economics

One of the most brilliant economic forecasts ever made in the modern times, was that of professor Nouriel Roubini (at New York University) before 2008 finance crisis, when he punctually described the whole crisis about a year beforehand.

He was coined as “Dr. Doom”. Now he has again made a similar forecast together with Brunello Rosa (research associate at London School of Economics). Roubini’s new “doom’s day forecast” (dated in September 2018) is a well-argued 10-steps path to recession by the end of 2020.

Finally, once the perfect storm occurs, the policy tools for addressing it will be sorely lacking. The space for fiscal stimulus is already limited by massive public debt. The possibility for more unconventional monetary policies will be limited by bloated balance sheets and the lack of headroom to cut policy rates. And financial-sector bailouts will be intolerable in countries with resurgent populist movements and near-insolvent governments.

Besides Roubini, numerous world-famous economists, Nobel-laureates, professors, financial analysts and other economic pundits during last 2-3 years, have presented their forecasts of economic recessions within next few years, like Kenneth Rogoff, Robert Shiller, Joseph Stiglitz, John Rubino, Keith Wright, IMF-director David Lipton, ex-Fed chiefs Ben Bernanke and Janet Yellen, ex-British PM Gordon Brown, British Chancellor of the Exchequer Philip Hammond and Lord Jacob Rothschild. In the same lines are several billionaire investors, hedge fund managers and corporate directors as well.

The Everything Bubble will burst at any time now.

After the 2008 Crisis, global central banks created a bubble in the sovereign bond market via quantitative easing QE. Because these bonds are the bedrock of the current financial system, when Central Banks created a bubble in this asset class, they were effectively creating bubbles in EVERYTHING. That bubble is now beginning to burst.

Historically, when stocks collapse the bond market rallies but not now. Unfortunately, this is not an anomaly. Both bonds and stocks can be down and this signals a tectonic shift in the global financial market. Throughout the post-2008 era, anytime stocks collapsed, money rushed into bonds. Not anymore.

Indeed, the bond market may now collapse along with stocks. The yield on the most important bond in the world, the 10-Year US Treasury, has broken its multi-decade trendline. Next financial crisis to be much worse with US dollar collapse.

A decade after the global financial crisis, the world is facing another crash even bigger than the one in 2008, veteran stock broker Peter Schiff, CEO of Euro Pacific Capital, told in late 2018. According to the investor, all the problems that caused the 2008 financial crisis loom even larger now.

“The too big to fail banks are now both bigger than ever, and more exposed than ever to rising rates and recession. So, the systemic risks to the economy are greater now than they were in 2008,” said Schiff. Such banks should have been allowed to fail a decade ago, he says.

Unfortunately, no lessons were learned from the last crisis. We repeated and expanded all the mistakes that caused the last crisis, ensuring the next one will be much worse,” he said.

However, the nature of the next crisis would be different, Schiff predicts. While the 2008 crisis was centered around mortgage debt, dollar rise and gold fall, the new one would be about the US Treasury debt crisis.

“Treasury debt will be the focal point of the next crisis, and the dollar will collapse and gold prices will soar. The ensuing recession will be much worse as consumer prices will also rise sharply.”

Now, even IMF and World Bank are seeing “Storm clouds brewing in the global finance”.