In the world there are many zombie institutions, zombie homes, zombie companies, shadow banks and also zombie countries. Now we could have a zombie economy.
With the escalation of interest rates in industrialized nations, all of the above are going to fall because as rates rise, raise the cost of debt and it will be impossible for the zombie economy to support it.
These predictions are not new, but on a day in which the Federal Reserve Bank of the United States (Fed) will make a crucial decision for the coming months, they take on relevance, even more so if we consider that they are made again, in an interview with the media international, by the economist Nouriel Roubini, known as “disaster doctor”who had the “distinction” of predicting the 2008 financial crisis.
The zombie economy according to Doctor Disaster
The economist He had pointed out a few months ago that a recession in the world was almost inevitable. Today he not only considers it a fact, but also specifically points out the period it will cover and the great impact it will have.
According to Roubini, much of the economy is held up by pins and the rise in interest rates, which is far from over, will eventually take them away.
It will “undress” all those who do not have the solidity to withstand the “brutal” increase in inflation, and as a consequence, in interest rates.
“It will be a long and ugly recession, starting at the end of 2022 and lasting all of 2023“, he told international media.
But he did not only refer to the recession, but to what he considers will be one of the biggest blows in the history of the stock markets.
From his point of view, the collapse of the “zombie economy”, as he calls it, will cause a collapse of up to 40 percent in the influential S&P500 index on Wall Streetnothing more and nothing less than the largest capitalization on the planet.
“Even in a mild recession scenario, the S&P500 could drop as much as 30 percent, due to the zombie crash.” He said.
Soft landing and shallow recession, a naivety
The economist was very harsh in his words and especially in his predictions; he sharply criticized all those who expect to see a soft landing for the economy, especially the US economy, and a shallow recession, saying they don’t see the evidence.
“They should all be looking at the huge corporate and government debt ratios. As interest rates rise we will see who is swimming naked,” Roubini said.
The economist completely rules out, once again, a soft landing for the economy, pointing out that the time for the Fed to get the inflation rate back to 2 percent without causing a recession it is over, achieving this goal will be impossible from their point of view.
“The short-term outlook is recession, the medium-term outlook is recession, and the long-term outlook (one year) is recession, there will be a recession yes or yes. The question is not that, but how big will it be?” Roubini said.
By Antonio Sandoval
High level Alto Nivel is the Mexican outlet with more than 30 years of stories, content, and news on the economy, finance, business, and leaders.