Nouriel Roubini | PBD Podcast | Ep. 319

Added: Oct 26, 2023

Dr. Roubini emphasizes the increasing severity and frequency of economic and financial crises in recent years. He believes that the relative stability experienced in the 1950s and 60s has given way to greater volatility and instability. He also highlights the presence of social, political, geopolitical, environmental, health, technological, and military risks in today's world.

The host asks Dr. Roubini about his nickname "Dr. Doom" and whether he has always been pessimistic about the future. Dr. Roubini explains that as an economist, he analyzes both the potential risks and rewards in the world. However, he believes that the downside risks have become more severe in recent years, leading to his reputation as a pessimist. He prefers to be called a "realist" rather than "Dr. Doom."

The host then asks Dr. Roubini about the current state of the economy, particularly in relation to the unprecedented actions taken during the COVID-19 pandemic. Dr. Roubini acknowledges that the current situation is unique and different from previous economic crises. He mentions the massive amount of money that has been printed, the historically low interest rates, and the shift towards remote work. He also highlights other factors such as the advancement of AI, geopolitical conflicts, and the impact of climate change.

The host asks Dr. Roubini about the potential case studies or historical examples that can help predict the future of the economy. Dr. Roubini explains that while there are similarities and differences between past crises and the current situation, the world has undergone a regime change. He mentions the increased risk of war among nuclear-armed powers, the growing threat of climate change, the rise of pandemics, and the potential impact of AI on jobs and society. He also notes the prevalence of radical populism and the increased severity of economic and financial cycles.

The conversation then shifts to the real estate market. The host asks Dr. Roubini for his advice on whether it is a good time to buy a house. Dr. Roubini believes that the current situation is not as bad as the subprime bubble and the global financial crisis. He mentions that while there may be some froth in home prices, the ratio between prices and rents is not as extreme as it was during the previous crisis. He also highlights the fact that interest rates are still relatively low and many people have locked in mortgages at lower rates. However, he advises waiting to buy until mortgage rates and home prices are lower.

The host brings up a chart that shows different groups' predictions about the likelihood of a recession. Dr. Roubini explains that there is a wide range of views among different groups, including economists and CEOs. He mentions that the Federal Reserve staff's baseline scenario has shifted from a short and shallow recession to a soft landing. He also notes that the timing of a potential recession can have different implications, such as its impact on the presidential election. The CEOs' concerns may stem from factors such as the buildup of corporate debt and the potential for a banking and financial crisis.

The conversation continues with a focus on the concept of "shadow banks" or non-bank financial institutions. Dr. Roubini explains that these institutions, including hedge funds and private equity firms, play a significant role in the financial system. He highlights the high levels of debt in the market, particularly in the form of junk bonds and fallen angels (firms that were downgraded from investment grade to junk status). Dr. Roubini also points out the buildup of private debt outside of traditional banking and capital markets, which he believes has been done in risky ways.

The discussion then shifts to the corporate sector and the challenges it faces. Dr. Roubini explains that many corporations have a high level of debt, and as interest rates rise, refinancing this debt becomes more difficult. He notes that while the economy is currently growing and generating positive profits and revenues, a recession could lead to financial distress for these heavily indebted firms.

Dr. Roubini also touches on the geopolitical risks facing the global economy, particularly in the Middle East. He discusses the potential impact of rising energy prices and conflicts in the region, such as the recent conflict between Israel and Hamas. He explains that if oil prices were to rise significantly, it could lead to inflation, recession, and a stock-flation scenario similar to the 1970s.

The conversation then turns to the upcoming US presidential election and its potential impact on the economy. Dr. Roubini suggests that the economy will be a key factor in determining the election outcome, with the Middle East conflict being a potential threat to economic stability.

The discussion also touches on the recent increase in labor strikes in the US and other countries. Dr. Roubini attributes this to the growing income and wealth inequality, with real wages stagnating while profits increase. He suggests that economic populism and industrial policy have become more prevalent among both Democrats and Republicans, as they seek to address the concerns of the working class and the middle class.

The conversation continues with a discussion on immigration. Dr. Roubini argues that immigration can be beneficial for the economy, as it brings in new workers and contributes to economic growth. He notes that economic populism and nationalism have influenced the immigration debate, with both parties adopting more protectionist stances.

The discussion continues with a focus on immigration. Dr. Roubini acknowledges that there are valid concerns about excess immigration and the impact it may have on job opportunities for native-born citizens. However, he also highlights the positive aspects of immigration, particularly in terms of innovation and economic growth. Dr. Roubini points out that many leaders and innovators in Silicon Valley are immigrants who have made significant contributions to the economy. He argues that a more rational and regulated approach to immigration is needed, with both parties finding common ground on the issue.

The conversation then shifts to the potential impact of AI on the economy and job market. Dr. Roubini acknowledges that AI has the potential to disrupt and replace many jobs, but he also emphasizes that in the short term, AI will likely create more jobs as new AI firms emerge. He believes that the demand for workers will outstrip the supply in the next decade, and that immigration will be necessary to fill this gap. However, he also acknowledges that in the long term, AI could lead to significant technological unemployment, which would require a redistribution of wealth through measures such as universal basic income.

The discussion then turns to the issue of social security and the challenges posed by an aging population. Dr. Roubini suggests that raising the retirement age and implementing incentives for people to work longer could help address the funding issues facing social security. He acknowledges that entitlement reform is a politically sensitive topic, but argues that it will eventually need to be addressed to avoid a crisis.

Dr. Roubini also touches on the issue of income and wealth inequality, emphasizing the need for policies that promote economic opportunity and job creation. He argues that a sound industrial policy is necessary to rebuild the job and industrial base of the country. He also emphasizes the importance of rational migration policies and a global approach to addressing the challenges posed by climate change and pandemics.

Throughout the conversation, Dr. Roubini emphasizes the need for less partisanship and polarization in order to address the economic and non-economic threats facing the country. He argues that the problems we face require sacrifices and collective action for the common good. He believes that America can overcome these challenges, but only if it comes together and addresses them in a rational and unified manner.