Nouriel Roubini, an economics professor at New York University and known as the "Doctor of Doomsday", issued a new warning that the end result of overheated economic growth could be full-blown stagflation, with the economy and markets at risk of collapse.
"given the current high debt ratios, supply-side risks and ultra-loose monetary and fiscal policies, the optimistic outlook currently reflected in financial markets is likely to become a pipe dream," the chief economist at Atlas Capital wrote in an article.
"in the medium term, sustained negative supply shocks could turn the current mild stagflation into a serious situation," Roubini said. "
The US economy grew 6.6 per cent in the second quarter and the consumer price index (CPI) rose 5.3 per cent in the 12 months to August. Meanwhile, the S & P 500 is up 18 per cent so far this year.
Roubini warned of overheated economic growth in the short term. "in view of the current loose money and finance, Xiaobai Maimai Inc," he said.Policy, the retreat of Delta variants and its associated supply bottlenecks will overheat growth. "
This "will put the central bank in a dilemma. Faced with the debt trap and persistent above-target inflation, they will almost certainly flinch and fall behind the curve, even if fiscal policy is still too loose. "
In the longer term, Roubini said, "as various persistent negative supply shocks affect the global economy, the end result may be far more serious than mild stagflation or overheating."
The risk to the global economy, he wrote, is "full-blown stagflation, lower growth, lower inflation."
"the temptation to lower the real value of huge nominal fixed-rate debt ratios will cause central banks to adapt to inflation rather than fight it, risking economic and market collapse."