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‘Dr.Doom’ Called 2007’s Housing Market Crash – And Here’s His Chilling New Warning

Last Updated September 23, 2020 2:01 PM
Simon Chandler
Last Updated September 23, 2020 2:01 PM
  • Nouriel “Dr Doom” Roubini — the economist who predicting the housing market crash of 2007 — is now predicting a decade of depression.
  • Roubini believes the recovery from the pandemic will be slow, pulled down by inflation, reductions in supply, and the loss of jobs.
  • His “decade of depression” may not damage the stock market or house prices, but it will hurt ordinary workers.

The economist who predicted the 2007 housing market crash has predicted a decade of depression as the world emerges from lockdown. Nouriel “Dr Doom” Roubini yesterday said that supply shocks and inflation will drastically slow the global economic recovery, which will also fail to replace lost jobs.

This is bad news for the stock market, which usually suffers declining stock prices during periods of high inflation. That said, a shift to technology will benefit some companies. Meanwhile, stagflation might be good for the housing market, at least insofar as it will push up house prices.

Dr Doom Strikes Again

Nouriel “Dr Doom” Roubini famously predicted the housing market crash of 2007 . Now, in an interview during Bloomberg’s Invest Global virtual conference , he’s predicting a decade of depression.

While he admits the recovery will begin this year, he also believes it will be “anemic.”

There’s going to be a painful process of deleveraging, both by the corporate sector and the housing sector. They have to be spending less, saving more, and doing less investment.

In other words, less growth. Although less investment in the housing market may cause higher prices.

Dr Roubini is often seen as a renegade with his predictions. | Source: Shutterstock.com

Ominously, Roubini also criticized the stock market for pricing in a V-shaped recovery. This, in his view, is “totally not consistent” with economic reality.

In addition, Roubini anticipates that the previous buildup of debt will have massive consequences.

So many firms right now are either bankrupt or on the verge of bankruptcy. They have to take action to try to survive. And what are the actions that have been taken in the United States? We lost in the U.S. in the last few months many more jobs than we created in the last decade.

Roubini believes that firms won’t replace lost full-time workers. Instead, they’ll contract casual workers and increase automation, as they did after the financial crisis of 2007-8.

Dr Doom jobs recovery tweet
A Twitter users points that continuing jobless claims are still high. ⎮ Source: Twitter 

In the process, there will be less demand in the U.S. economy, as a result of less income. In turn, less spending, less growth, less earnings.

Stagflation, De- Globalization, Redistribution

Nobel Prize-winning economist Joseph Stiglitz also sees a U-shaped recovery on the horizon. As part of the same conference, the Columbia University professor predicted a weakening of globalization .

So does Roubini. And what’s significant about a reversal of globalization is that it will reduce supply. Combined with massive quantitative easing, such a reduction will lead to big inflation. Inflation in consumer prices, and inflation in the housing market.

Housing market graph
Housing market prices are now 20% higher than they were in 2007, while real median household income is only 3.6% higher . ⎮ Source: Federal Reserve Bank of St. Louis 

We’re going to be faced with a significant amount of negative supply shocks in the global economy. Eventually, the inflation genie will get out of the bottle.

That said, it’s clear from Roubini’s interview that, by a decade of “depression,” he largely means an economic recovery that neglects the masses.

The issue is not whether the economic pie is bigger, but what’s going to be the distribution of the benefits. And the distribution of benefits is going to go to capital and those that are very, very high skilled. And everybody else is going to be left behind.

As such, the slow recovery might not seem like a “decade of depression” if you play the stock market or own real estate.

Inflation may bring higher prices to the housing market. Likewise, the stock market may be kind to companies who can ride out the recovery by further embracing technology, even if inflation might depress stock prices elsewhere.