Nouriel Roubini says markets should brace for a meltdown as stressors lead to a 'doom loop' in the economy

• Nouriel Roubini says the economy is headed for a "doom loop".

• That's due to three stressors in the economy, which will leave the Fed unable to fight a recession.

• Roubini, who called the 2008 downturn, has long warned of imminent financial chaos.

Nouriel Roubini has more dire words of warning for the economy.

"Dr. Doom" warned in a column this week that the US face a major financial crisis and the economy is entering what he calls a "doom loop".

In an op-ed for Project Syndicate on Thursday, Roubini forecasted a coming cycle of economic pain, as the US struggling under both high inflation and high debt burdens. Those issues perpetuate each other, he said, warning of a recession and impending financial crisis that would only get worse the longer it dragged on.

"A severe recession is the only thing that can temper price and wage inflation, but it will make the debt crisis more severe, and that in turn will feed back into an even deeper economic downturn," he said. "Since liquidity support cannot prevent this systemic doom loop, everyone should be preparing for the coming stagflationary debt crisis."

The famed economist, who is known for his downbeat prognostications, has warned of a stagflationary debt crisis for months, which will involve a steep downturn that combines the worst aspects of 1970s stagflation and the 2008 financial crisis. He expects such a scenario to hammer the economy with high inflation, low growth, and a 30% stock market crash.

That disaster is largely coming as a result of three economic stressors the US is facing: high inflation, high debt levels, and financial instability.

But the solutions to those issues are at odds. Central bankers will need to lower interest rates to ease rising debt burdens, but at the same time, need to raise interest rates to fight inflation. That's been further complicated by the collapse of Silicon Valley Bank last month, which has created even more pressure for Federal Reserve to dial back interest rates, in order to stabilize the financial system.

The result is a "trilemma" that leaves the Fed at an impasse, Roubini said. He predicted Fed officials will eventually "wimp out" on raising interest rates, and that will cause runaway inflation, debt problems, and financial instability across the economy.

While certainly on the more bearish end of the spectrum, parts of Roubini's outlook have been echoed by other market commentators, who say the Fed's monetary policy is a tough balancing act and a recession is on the horizon.

Goldman Sachs raised its predictions for a 2023 recession up from a 25% probability to 35%, and top economist Mohamed El-Erian – who has also warned of the dangers of the Fed's trilemma – said economic indicators are flashing yellow warning signs.

Read the original article on Business Insider