Nouriel Roubini Quotes

The party will go on until reckless speculation becomes unsustainable, ending with the inevitable collapse in bullish sentiment, a phenomenon called a Minsky moment, named for economist Hyman Minsky. It’s what happens when market watchers suddenly begin to wake up and worry about irrational exuberance. Once their sentiment changes, a crash is inevitable as an asset and credit bubble and boom goes into a bust.

Emerging markets often get in trouble when the Fed hikes interest rates rapidly, or the price of exported commodities falls sharply—or both.

It’s a classic bias in human thinking: most of us never want to imagine the worst. We are optimists by nature. Personally, I find the zeitgeist at Davos every year to be a contrarian indicator of the future. If everyone in the Davos set believes something will happen—good or bad, as it may be—they are highly likely to be wrong.

The coming tsunami will not spare China, where credit-fueled economic growth has built a Himalayan mountain of debt, about 330 percent of GDP.

Borrowing to invest can make good sense as long as the return on the investment is higher than the cost of financing it. Borrowing to consume, on the other hand, uses debt to plug recurring bills or deficits that operating income should cover. Experience teaches prudent public and private borrowers a golden rule: borrow to invest, not to consume.

A boom-and-bust pattern has been well chronicled since the publication of Extraordinary Popular Delusions and the Madness of Crowds in 1841. In it, Scottish author Charles Mackay probed the human tendency to run amok in pursuit of quick profits, dating back to a mania for tulip bulbs as expensive as houses in seventeenth-century Holland.

These economies featured high savings and prudent fiscal authorities. Dubbed the Asian Tigers, South Korea, Malaysia, Indonesia, and Thailand were touted as models of economic transformation. They nurtured a cadre of dynamic companies with global reach—but as it turned out, those companies were fueling their own growth with massive levels of debt, often in foreign currency. Private debt can be just as destructive, if not more so, than public debt.

Bailouts of insolvent agents cannot restore economic health any more than two sober friends make a drunk friend sober by standing him upright: socializing unsustainable private debts often leads to unsustainable public debts.

about the global economy,” the investigative research website Yahoo News reported in March 2020. Cash flow at nearly 17 percent of the world’s forty-five thousand public companies could not meet interest costs over three years through 2020, according to data reported by FactSet.4 Indeed, given cheap borrowing costs, thanks to central banks’ unconventional policies, many corporate firms—already highly indebted—borrowed more during the COVID-19 crisis and became bigger zombies. Their overborrowing came home to roost in 2022. Monetary policy tightening by the Fed sharply increased the spread that “high yield” bonds paid relative to safe bonds, thus vastly increasing the borrowing costs of leveraged firms that rely on “junk” bonds. Then, defaults started to increase.

I am wary of the emerging new consensus around MMT. Of course, I understand that when rates are near zero or negative, governments can increase spending and debt, boosting national economic growth, without facing ballooning debt-service costs. But that magical thinking cannot last forever. Gaping deficits today are causing debt ratios to rise despite those low prevailing interest rates. Absent a powerful and lasting level of economic growth, some sort of event will eventually lance the worldwide debt bubble. The COVID-19 pandemic has pushed us close to the brink. The next shock is likely to push us over.

When emerging markets cannot pay foreign debts, options vanish. Unavoidable defaults shut off access to global capital markets. Without access to capital, economies contract. Local currency becomes worthless. Printing more money invites inflation and hyperinflation. Poverty proliferates. Governments that cannot provide for their populations do not last long. Chaos opens the door to empty promises by authoritarians armed with populist slogans and freelance militias. Advanced economies are not invulnerable, as history has shown repeatedly. It’s worth noting that in 1899 cautious investors sought safety in one-hundred-year bonds issued by the Habsburg Empire that ruled Austria-Hungary. When the anarchist Gavrilo Princip assassinated Austria’s archduke Ferdinand in June 1914, an act that ignited World War I, sovereign Habsburg bonds were still holding their value relative to other European bonds. In other words, no experts saw the end coming. Within four years, the Habsburg Empire was history. Two decades later, the postwar debt and reparations bills that nearly smothered Germany helped usher in World War II.

Every single remedy to high debt levels brings its own costs: the paradox of thrift, the chaos of defaults, the moral hazard of bailout, the wealth taxation that hurts the wealthy and may lead to less private capital investment, the labor taxation that hurts the most vulnerable, unexpected inflation that wipes out the wealth of creditors. That is why we have arrived at the new “consensus” of MMT, as if it were a free lunch. Keeping interest rates low and continuing to pile up debt has become the path of least resistance and the softest way to redistribute wealth/income from savers/creditors to borrowers/debtors. But by definition, easy money feeds more debt. Easy money also leads to asset inflation, and eventually to bubbles. There will be a reckoning. It could come in the form of a great crash, bursting the bubble and triggering default, or inflation, or even stagflation.

I wish it were not so, but the Mother of All Debt Meltdowns looks inevitable, either via inflation or outright default. Choose your poison. We’re speeding toward it on greased rails. We cannot succumb to inertia or presume that we’ll get through another debt crisis as we have before. This time, I’m sorry to say, we have to expect far worse. Anyone who imagines that a collapse of this magnitude will only harm lenders and borrowers—banks will suffer, but my household will be fine—should remember just how much risk exists in the world, not just economic and financial, but also geopolitical.

The bottom line, says Rodrik, is that freer immigration has a much more positive net impact on global domestic product than liberalizing trade, movements of capital, or financial services.

According to standard economic theory, free trade helps global welfare. The same is true for free trade in people, via open-border immigration policies.

We totter now on a precipice, the ground shaking beneath us. Yet most of us still imagine that the future will resemble the past. That’s a whopping mistake. New warning signs look clear and compelling.

Based on data from the Institute of International Finance, global debt—private and public—by the end of 2021 was well over 350 percent of global GDP, and it has been climbing fast for decades (from 220 percent of GDP in 1999) and spiking after the COVID-19 crisis. 4 The ratio has never before come close to this level in advanced economies or emerging markets. US debt is right on pace with the global average. Current US private and public debt-to-GDP ratio is much higher than the peak debt during the Great Depression, and more than twice the level when the United States emerged from World War II and entered a period of robust growth.

When the debt bills come due, governments have no good options. The kinds of harsh remedies available—devaluing currencies and cutting off the social safety net, for example—often lead to all manner of unintended consequences, including market crashes, authoritarian populism, and even the quiet sale of missile and nuclear technologies to the highest rogue bidders.

Blaming crashes and recessions on random and unpredictable shocks beyond our control has led experts and policy makers to view subsequent crises through the wrong lens. There are random and unpredictable shocks in life, but that doesn’t mean we can’t face them honestly and prepare for a world in which we know they happen even if we don’t know when.

Recall the 1970s, a decade that featured bubbles, busts, an end to the global gold exchange standard, devaluation of the dollar, mounting debt, risky financial innovation, monetary and fiscal experimentation, and oil supply shocks driven by geopolitical shocks. It all culminated in double-digit inflation, stubborn unemployment, and persistent recession. That is the corrosive condition known as stagflation, or stagnation with inflation.

I don’t mean to imply that no one is minding the store to stop bubbles from getting too big. On the contrary, many smart people are trying to do just that. It’s an immense challenge. The problem is not inattention, ill intention, or negligence. It’s the fact that every decision in the macroeconomic sphere has gigantic stakes attached. The wrong call can cause a lot of damage. To mitigate damage, a welter of rules and regulations has emerged since the global financial crisis. The traditional focus on maintaining sound individual financial institutions has turned by necessity to a larger realm. “Keeping individual financial institutions sound is not enough,” the International Monetary Fund has warned. “Policy makers need a broader approach to safeguard the financial system as a whole. They can use macro-prudential policy to achieve this goal.” That’s a fancy way to say, let’s think about the aggregate picture, not just the moving parts.

replacing brainpower is different from replacing muscle power. Good jobs that emerged from the decline of manufacturing and rise of services required brains, not brawn. “Knowledge worker” was the category that everyone wanted to join. But now we have lost our monopoly on knowledge. Artificial intelligence can handle desirable jobs better and faster than human brains can handle them. There will be jobs for people, but who will want them?

Start with the observation that megathreats are structural. Income and wealth inequality, massive private and public debts, financial instability, climate change, global pandemics, artificial intelligence, and geopolitical rivalries have deep roots in worldwide systems and cultures. We cannot attack their causes without risking unintended consequences.

What about our looming financial crises? Innovation can solve many problems, but it won’t erase unsustainable debt. We have borrowed our way to prosperity with no exit strategy. Loans secured with home equity and other assets lifted consumption in the 2000s as income growth slowed. Dimming prospects of repayment did not deter lenders who preyed on increasingly desperate consumers and homeowners. Behavior that fueled the 2008 financial bubble and bust will persist, but on steroids.

Even the cost of commodities necessary for renewable energy—like lithium and copper—will sharply rise as the price of fossil fuels skyrockets, a phenomenon dubbed greenflation. Supply chains that depend on fossil fuels will strain to keep goods moving. Shortages will proliferate.

What if the last seventy-five years has been the exception rather than the rule? What if the last three-quarters of a century has lulled us into believing that the next few decades will continue on the same path? What if we have forgotten the lessons of history from a century ago? In the first four decades of the twentieth century, we faced World War I, then the deadly Spanish flu of 1918–19, then deglobalization and bouts of hyperinflation, and then the Great Depression.

The patterns of a century ago may be a harbinger of what we are facing now. In many ways, the megathreats of today are worse than the threats of a century ago.

Energy prices in the Goldman Sachs Commodities Index soared almost 60 percent in 2021 as supply lagged behind demand.49 Pressure on institutional investors from eco-minded shareholders has slashed investment in new fossil fuel projects by 40 percent, according to one estimate.

A universal basic income or universal provision of public services or some combination of the two could furnish a new financial safety net. Ex-ante pre-distribution of assets rather the ex-post redistribution of wealth is an alternative option to reduce wealth inequality. Asset owners would benefit from ample returns, thus allowing everyone to pursue creative, entrepreneurial, or socially redeeming activities. Surrendering the “dignity of work” might not stir a protest if income subsidies open new doors to fulfillment. With UBI, workers in advanced and innovative economies will endure lower paychecks (but fattened by transfers) without the anger that propels voters toward populists with contempt for progressive liberal democracy.

Economists often tell a variant of the tale about an entrepreneur who introduces a good—say a toaster—costing far less than alternatives. He credits the lower price to new technology. Happy consumers flock to his toaster. They stop buying expensive toasters and call him a genius who has increased the purchasing power of their income. Then he reveals that he did not invent a new process. He bought the cheap toasters in China. So this was his great revolution. This was a fake miracle, people say. And he is bashed because the Chinese are taking away jobs. The two outcomes are identical, but people don’t see them that way.

Melting icecaps and glaciers will release more than water, according to Scientific American. “As the global climate continues to warm, many questions remain about the periglacial environment. Among them: as water infiltration increases, will permafrost thaw more rapidly? And, if so, what long-frozen organisms might ‘wake up’?”32 Authors Kimberley Miner, Arwyn Edwards, and Charles Miller give ample cause for alarm. “Organisms that co-evolved within now-extinct ecosystems from the Cenozoic to the Pleistocene may also emerge and interact with our modern environment in entirely novel ways,” they reported. Scientists have traced an anthrax outbreak in Siberia to permafrost thaw.