Economist Nouriel Roubini says the world is in a “debt trap”.Credit:Jason Alden
“When central banks are going to want to essentially phase out unconventional monetary policy,given the debt ratios,there is the risk of a crash in the bond market,in the credit market,in the stock market,in the economy,and therefore they’ll be in that debt trap and unable to normalise policy rates.”
When the COVID-19 pandemic started to strangle the global economy,easy monetary policies and stimulative fiscal policies were seen as necessary to “backstop the financial system,” Roubini said.
But the results have been extreme.
“We are in a debt super cycle,” he said. “And eventually,central banks are in a trap.
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“People said they are going to normalise policy rates,but with these levels of private and public debt,if they were trying to do that,there will be a market crash,an economic crash,and therefore,I think the path of least resistance is going to be to wipe out the real value of nominal debt at fixed-interest rates with higher inflation.”
Over time and inevitably,he sees higher rates and slower growth,with the potential for stagflation.