Prof. Roubini (of New York’s Stern
School of Business), nicknamed Dr. Doom has predicted there will be some jobs
that will never come back after Covid-19. He also warns of an unprecedented
recession.
Prof. Roubini foresaw the financial
crisis in 2008 before many others did. During the Global Financial Crisis of
2008, it took 3 years for output to fall sharply. This time around it was in 3
weeks. Whether recovery is U-shaped or L-shaped there are 9 risky trends he
cites:
i)
Debts
and defaults – massive increase in fiscal deficits is unsustainable in the long
run. The same goes for households and firms;
ii)
Demographic
time bomb in developed economies- aging societies require more health care and
social security systems funding;
iii) Deflation
– a massive slack in goods and labour will collapse prices in commodities and
industrial metals;
iv) Currency
debasement – permanent negative supply shocks from accelerated deglobalisation
will make stagflation inevitable;
v) Digital
disruption – income and wealth gaps will widen; with downward pressure on wages
from greater automation;
vi) De-globalisation
– fragmentation is already underway. More restrictions on movement of goods,
services, capital, labour, technology, data and information. Already happening
in pharmaceutical, medical-equipment and food sectors;
vii)
Economic
insecurity- foreigners are scapegoated for the crisis;
viii)
New
“Cold War” between U.S. and China, Russia, Iran and North Korea;
ix)
Upsurge
in clandestine cyber warfare; and
x)
Environmental
disruption – will be more frequent, severe and costly in the future.
These 10 risks threaten to
fuel a perfect storm for 2020-2030 and that’s the decade of despair, as he
calls it.
Nobel prize winning economist Joseph Stiglitz
predicts the U.S. will have at least 6 months of negative growth. Although he
does not go as far as Roubini on longer term trends.
So, what then is a financial
depression?
The difference between a
recession (two quarters of negative growth) and a depression comes down to
depth and severity of the effects. The GFC (or also known as Great Recession)
was from December 2007 to June 2009 and unemployment peaked at 10%.
The Great Depression lasted
10 years (1929 to 1939) with unemployment at 25%. The number of unemployed
Americans is now over 30 million and could hit 47 million or a 32% unemployment
rate. And if this rate stays above 15% to end 2021, then we are into a
depression.
Billionaire investor, Ray
Dalio shares Roubini’s view of a depression. Global losses would be anywhere
between USD 12 trillion to USD 20 trillion. Dalio believes it will take
“creativity” and “inventiveness” to rebuild the economy. And more competent
leadership may help reduce many of the issues listed above. Hopefully a more
inclusive, stable international order may then arise.
The “Goliaths” of the world
may seem insurmountable but look to the One who conquered the world, and these
will look insignificant because of His presence in you.
References
1. Here
are the 10 biggest economic challenges we face over the next 10 years, Nouriel
Roubini, World Economic Forum, May 1, 2020.
2.
Roy
Dalio predicts a coronavirus depression, Tom Huddleston Jr., CNBC, April 9,
2020.
3.
U.S.
economy is in a “medically induced coma”, Megan Leonhart CNBC, April 22, 2020.
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