In a recently published article, Nouriel Roubini, one of the most trusted economists on the planet, predicts: “By 2020, the conditions will be ripe for a financial crisis, followed by a global recession.” He states ten reasons for his prediction that we can thusly synthesize: In the United States, growth will be dwarfed because of fiscal stimulus losing efficiency, commercial tensions and rising interest rates. Europe and emerging countries will also experiment slower growth. “Moreover, the leverage in many emerging markets and some advanced economies is clearly excessive,” explains the American economist, underlining the excessive height of the stock market and the “the risk of illiquidity and fire sales/undershooting.” 

We can share his analysis, globally, even if he is obviously biased toward Trump. Nouriel Roubini goes even as far as predicting that Donald Trump will start a war with Iran to make a diversion from the declining growth... On the contrary, it seems the expansion of the American economy is quite robust, being based on deregulation (e.g. rolling back restrictive environmental standards) and repatriation of multinational corporations’ profits, due to an accommodating fiscal policy, even though there is, of course, some fiscal stimulus (with the highest deficit since 2012, at 3.9% of GDP) going on and that rising interest rates by the Fed might constitute a serious risk. 

As far as Europe is concerned, though, we agree with Roubini when he warns: “The still-unresolved 'doom loop' between governments and banks holding public debt will amplify the existential problems of an incomplete monetary union with inadequate risk-sharing.” And he gravely concludes: “Under these conditions, another global downturn could prompt Italy and other countries to exit the eurozone altogether.” 

And Roubini reveals this crucial information: “In the US specifically, lawmakers have constrained the ability of the Fed to provide liquidity to non-bank and foreign financial institutions with dollar-denominated liabilities.” The 2008 crisis was, as we know, due to the subprimes, but also due to European banks having difficulty to refinance themselves in dollars, a lesser-known fact (Adam Tooze explains it in his latest book, Crashed). Loaning dollars (long term) to emerging countries while refinancing (short term) on the American market is quite profitable, but very risky, as we can see presently with Turkey putting pressure on several European banks. 

For a change, the crisis could come from Europe instead of the United States – we had already envisioned this scenario – since French and European banks are in worse shape than their American counterparts, as we had mentioned before. As far as predicting a date for the next crisis, for what it’s worth, let’s go for August 2021. Why this very precise date? Well, it will mark the 50thanniversary of the decision that has, we think, triggered the whole present cycle of debt explosion and financial hypertrophy, that is the end of the dollar’s convertibility in gold announced by Richard Nixon on August 15, 1971. There was nothing left to prevent governments to run persistent budget deficits. And this is where we are now. Wouldn’t it be mordant to get to the end game exactly a half-century later?

Anyhow, the next crisis will be more serious than the last one, as explains Nouriel Roubini, to the point: “Unlike in 2008, when governments had the policy tools needed to prevent a free fall, the policymakers who must confront the next downturn will have their hands tied while overall debt levels are higher than during the previous crisis. When it comes, the next crisis and recession could be even more severe and prolonged than the last.”

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