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

Tracy Alloway (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:14)

And I'm Joe Weisenthal.

Tracy Alloway (0:16)

Joe, I'm thinking back to the spring of 2020, the depths of the COVID-19 pandemic and the big market sell-off.

Joe Weisenthal (0:24)

I don't like thinking back. I mean, it was a terrible time.

Tracy Alloway (0:27)

It was a bad time.

Joe Weisenthal (0:28)

So why are you reminding us of that?

Tracy Alloway (0:30)

Well, I remember we spoke to one particular guest in, I think it was May of 2020, 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 skeptical. At that particular moment, everyone was talking about deflation and the possibility of a prolonged depression really.

Joe Weisenthal (0:56)

Yeah, you're totally right. And then also by like sort of late 2020, or even like summer 2020, optimism started to grow.

Tracy Alloway (1:04)

Oh yeah.

Joe Weisenthal (1:04)

Oh, we're going to have this, because we're going to come out of this with the boom, that we got the policy just right, that we're going to have all, you know.

Tracy Alloway (1:11)

We avoided the mistakes of 2008

Joe Weisenthal (1:13)

That's right, that's right. And the stock market was surging. I think there was just a lot of optimism, even outside of the stock market, that like we were going to be on this new superior trajectory post pandemic.

Tracy Alloway (1:23)

Yeah. And of course now fast forward about two years, and we're talking about the pain of higher interest rates as the Federal Reserve tries to tamp down on inflation that is at its highest in, 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 of 2020 when there was a lot of uncertainty.

Joe Weisenthal (1:58)

Yeah, something you mentioned, this fears of that something is going to break. And I'm thinking our regular guest, John Turk has written about this and others, this idea that what if 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.

Tracy Alloway (2:23)

It is. So why don't we bring in Nouriel Roubini, 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 coming out on October 18th. It's called MegaThreats, Ten Dangerous Trends That Imperil Our Future and How to Survive Them. So hopefully the perfect person to be speaking to right now.

Nouriel Roubini, thank you so much for joining us.

Nouriel Roubini (2:51)

Great being with you. Such a pleasure to do it again.

Tracy Alloway (2:54)

Shall we let you have that victory lap? So, you know, what did you see in early 2020 that you think other people, notably perhaps certain policy makers, might have missed?

Nouriel Roubini (3:07)

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.

But I think what I saw, that other people saw as well, you know, early on, people like Larry Summers, Mohamed El-Ariane and others, talked that the amount of the stimulus, monetary and fiscal, would be excessive. Of course, we didn't do enough on the fiscal side in 2008, but between Trump and Biden, we had about $5 trillion of fiscal stimulus that is something like about 20% of GDP. That was excessive. And of course, the Fed went back to zero, credit easing, quantitative easing, backstopping, money market, commercial paper, high yield, high grade, banks, non-banks, corporates, households, you name it, everybody under the sun. I think the difference between me and people like Larry was that they were stressing that it will be inflation because of aggregate demand shock, too much stimulus. And I agreed on that, that half of the problem was bad policies to lose monetary, fiscal and credit easing. But from early on, I also realized that this would be a negative aggregate supply shock, the disruption that came to global supply chains, the shutdown of economic activity from services to initially manufacturing, the reduction in the labor supply.