One of the world’s most respected economists believes the banking crisis isn’t over yet and that US officials are just buying time by claiming the banking system is ‘healthy’. I’m here.
Nouriel Roubini, chief executive of consulting firm Roubini Macro Associates, said Friday that the financial system will soon be facing a “trilemma” that will trigger another phase as it becomes unable to cope with the sheer size of the already accumulated private and public debt. claimed to produce of panic.
“We will not achieve price stability, sustain economic growth, [and] At the same time, you get financial stability,” he said. bloomberg television“So ultimately there will be an economic and financial crash.”
Rubini with the nickname “Doctor”. Doom, after predicting the global financial crisis of 2008, said on Wall Street that concerns about the stability of U.S. lenders centered solely on unrealized losses totaling $620 billion from unrealized securities in the banking system. said it shouldn’t.
Instead, he argued, attention should be paid to the Federal Reserve’s (Fed) campaign to raise interest rates by a cumulative 4.5 percentage points over 13 months. Much less valuable now.
Taking these risks into account, the unrealized losses balloon to $1.7 trillion, according to a study released earlier this month by the New York University Stern School of Business, where Roubini is an emeritus professor.
By comparison, the authors of this paper write that the total capital of the entire banking system, or its ability to absorb losses before it fails, is only $2.1 trillion.
“Hundreds of smaller banks have literally failed, and that is the fundamental problem,” said Roubini. “As interest rates rise, the value of securities and loans declines, creating massive liquidity and solvency problems.”
rubini said bloomberg European Central Bank (ECB) President Christine Lagarde last week argued that price stability and financial stability are not mutually exclusive. Because healthy, well-managed banks can face a credit crunch as long as monetary authorities support liquidity.
In his view, this only works if the stress is very local rather than systemic.
heading for a hard landing
Roubini predicted that what started as funding mismatches and liquidity problems would snowball into balance sheet problems.
“A recession will lead us from duration and market risk to credit risk,” he warned.
That’s because the current crisis caused by Silicon Valley bank depositors will force lenders elsewhere to cut credit supply to small community businesses and households.
As a result, credit growth could go from 10% per annum to near zero. Mr. Roubini said that once U.S. gross domestic product goes from expanding to contracting, the indebted economy will no longer be in a position to service its financial debt.
“In the 1970s, when there was a stagflationary shock that led to inflation and recession, debt ratios in developed countries were only about 100% of GDP. Today they are 420%,” he said. rice field.
The last time the balance sheet was stretched in 2008 and 2009, the US economy had one big advantage. Raise the press.
With consumer prices showing little sign of returning to the Fed’s 2% growth target in the near future, Roubini said neither the U.S. central bank nor the debt-ridden federal I don’t think I have the necessary room for manipulation.
“We are at the worst of the ’70s in terms of negative supply shocks, slowing growth and inflation, and the debt ratio is much higher than after the Great Financial Crisis,” Roubini said. “We are headed for a hard landing.”