Nouriel Roubini earned his moniker “Dr. Doom” during the mid-2000s housing bubble, but his was the rare voice that accurately predicted the eventual crash. In his latest book, the economist continues to view the world through a decidedly realistic lens. Roubini sees impending disaster around many fiscal corners: He reports that the Federal Reserve and the European Central Bank have grown dangerously political, and he believes the rise of artificial intelligence could lead to levels of unemployment that would make the Great Depression seem mild. This bracing study serves up a long list of reasons why investors and workers should remain wary.
- Massive levels of debt are a “megathreat.”
- Public pension funds are at risk of being overwhelmed by aging populations.
- Easy-money policies during the COVID-19 pandemic inflated a bubble.
- Another era of stagflation looms.
- A number of forces could push down economic growth in the coming years.
- The dollar is the globe’s fiat currency, but that status might not last forever.
- Globalization is losing momentum.
- Computers are learning to think, a development that could reshape the economy.
Massive levels of debt are a “megathreat.”
Even before the coronavirus pandemic, governments and consumers worldwide had run up massive amounts of debt. Then came the threat of a global depression, and governments took on even more debt. During the Trump administration, stimulus packages added $4.5 trillion in public debt. Under President Joe Biden, the debt kept growing. Public debt is ballooning in Europe as well. By the end of 2021, worldwide debt loads had exploded to 350% of global GDP.
“Responses to COVID-19 wrenched loose any semblance of debt restraint, regardless of which party or coalition was in power.”
In a healthy public debt cycle, governments can borrow during recessions to spur economic activity and then pull back public spending when times are good. That’s not what’s happening in the current environment of out-of-control debt levels. These massive debt levels leave nations at risk of debt crises, which governments often respond to by devaluing currencies and slashing spending on social programs. And those sorts of harsh responses give rise to authoritarianism and, for particularly desperate regimes, secret sales of nuclear weapons to bad actors. Emerging markets face the direst outcomes from a debt crisis, but even the largest and most powerful economies won’t be immune.
Public pension funds are at risk of being overwhelmed by aging populations.
The biggest debt threat comes from the massive promises made by Social Security and other government pension programs. In the United States, Social Security faces insolvency in 2033. After that point, pensioners are likely to collect only 76% of their projected benefits. That means Americans increasingly will rely on their own savings – a daunting prospect, considering that half of Americans have $5,000 or less in savings. In the United States, Social Security is notoriously a third rail – no politician dares take the necessary step of reducing benefits to keep the system alive. Demographic shifts mean the numbers of retirees compared to workers are growing everywhere – in Europe, the United States and Japan, but also in China, Russia and South Korea.
“Giant fiscal gaps are now part of the global economic landscape.”
There’s no obvious solution to filling the public pension gap. It’s impossible to raise payroll taxes or other taxes to the extent that current holes would be plugged and future generations’ benefits would be funded. Printing money to cover the shortfall would only trigger inflation. Going back on the safety net promises would spur political unrest. In one example of the looming time bomb, Poland’s population is constracting and aging. The graying of the population means Poland’s economy is shrinking, even as life expectancies are expanding. A young Pole today can expect to live to 100. How to pay for that lifespan is an unanswered question.
Easy-money policies during the COVID-19 pandemic inflated a bubble.
When the pandemic hit in 2020, central banks and public officials across the globe responded by pumping money into the economy. The stimulus was more generous than the bailouts that followed the Great Recession. The predictable result was a boom in asset prices. Home values shot far past historical norms. Cryptocurrencies and other digital assets turned into a craze. Investment vehicles known as special purpose acquisition companies (SPACs) became all the rage on Wall Street. Unsurprisingly, this period of zero interest rates and economic stimulus led to bubbles across asset classes. A wave of inflation also emerged.
“When loose monetary policy makes money too cheap for too long, you don’t need Sherlock Holmes to detect excessive risk of a coming bust as the bubble eventually bursts.”
The pandemic bubble finally lost some air in 2022, when the Federal Reserve reversed course. Fighting inflation, it started raising interest rates and, by May of that year, stocks were in a bear market. Tech stocks, meme stocks, SPACs and cryptocurrencies were hit especially hard. All of this drama in financial markets followed a predictable script. For decades, policymakers have responded to crises with a regimen of easy money and easy credit. One crisis is averted, but another – an inevitable boom and bust – forms. In this way, easy money is a trap, and one that policymakers lay at every sign of financial pain.
Another era of stagflation looms.
During the 1970s, economists coined the term “stagflation” to describe the unpleasant combination of stagnant economic growth and relentless inflation. The episode was triggered by a variety of events, including oil shocks and the unwinding of the gold standard. In the decades that followed, the trends were far more salubrious. Inflation was held in check, labor markets were strong and economic growth generally marched upward. Times were so good for so long that, in 2004, soon-to-be Fed chair Ben Bernanke remarked on the “substantial decline in economic volatility.” Within a few years, of course, volatility was back with a vengeance.
“Easy money inflates the price of assets and goods while spiking credit growth, but massive debt rules out policy responses that can curb inflation.”
By the same token, the threat of stagflation is back. The pandemic stimulus inflated prices and debt levels – and at the same time tied central bankers’ hands. In the early 1980s, the Fed slayed the inflation dragon by raising interest rates to 20%. Such a strong response is impossible today. So global economies could endure a period of stagflation characterized by low growth, tepid corporate profits and, for workers, disappointing raises.
A number of forces could push down economic growth in the coming years.
“Negative aggregate supply shocks” could cause a repeat of the 1970s. These aggregate supply shocks include:
- Aging populations tamp down growth – With fewer young workers in the labor force, employers are forced to raise wages. This feeds the inflationary cycle.
- Migration slows – For decades, workers moved from poorer to richer economies in search of jobs. But crackdowns on immigration mean this pressure valve on wage inflation no longer exists.
- Tighter trade policies raise prices – World economies are returning to protectionism and globalization, reversing the trend that allowed prices to fall for decades.
- Reshoring raises costs – The pandemic supply-chain shocks convinced producers to reshore factories. Moving production to higher cost locales creates upward pressure on prices.
- Tensions between the United States and China are heating up – The oil shock of the 1970s led to a lost decade. Things could be even more dire if China aggressively stakes out turf in Taiwan, a major source of semiconductor chips.
- Russia’s invasion of Ukraine ushered in “a geopolitical depression” – Russia’s invasion of Ukraine sparked increases in the prices of energy and food. Future conflicts involving Iran, North Korea and other allies of China would likewise create inflationary trends.
- Climate change is an inflationary force for three reasons – First, harsher weather is reducing the area of arable land. Second, oil producers – anticipating green energy – are investing less in production, causing upward pressure on energy prices. Third, natural disasters disrupt supply chains and exacerbate production issues.
- Global pandemics could become routine – The COVID-19 pandemic might prove to be just a dress rehearsal for future contagions.
- Progressive politics could push regulations too far – The backlash against income inequality is a logical response. But pro-worker policies can lead to rising wages and rising prices.
- Cyberattacks are growing more serious – Digital assaults in 2021 crippled a gas pipeline and meat processors. Further incursions could upend supply chains.
- The US dollar has been politicized – After Russia invaded Ukraine, the West imposed widespread economic sanctions on Russia. That moment will be remembered as the impetus for Russia and China to dump the US dollar as their reserve currency. Financial wars portend trouble for the reserve currency, and the US dollar faces disruption and devaluation.
The dollar is the globe’s fiat currency, but that status might not last forever.
The US dollar has emerged as the reserve currency of the global financial system. It’s a status that lets the US government borrow cheaply to support both its trade deficit and fiscal profligacy. However, many well-placed experts are growing wary of the dollar’s position. Ray Dalio, head of the massive hedge fund Bridgewater, said in 2021, “Fiat money eventually leads to the debasement of money.” The pandemic stimulus raised concerns about the Federal Reserve and the dollar. In 2020 and 2021, the Fed’s balance sheet ballooned from $4.3 trillion to nearly $8.7 trillion. The Fed was snapping up Treasury securities at a pace of $80 billion a month.
“History teaches the essential importance of keeping politics out of monetary policy.”
The pandemic underscored the politicization of central banks. Monetary policy should be apolitical, but during the pandemic, Fed chair Jerome Powell pressured politicians to stimulate the economy. Congress and two presidents obliged. The problem is similar in Europe, where the European Central Bank’s balance sheet has expanded in recent years. This “mission creep” in central banking leads to the very real threat of currency debasement. In medieval Europe, governments debased coins by using less precious metal in their manufacture. In modern times, currencies are debased by printing money. In the case of the United States, massive unfunded claims on the government – which is on the hook for Social Security, health care and climate change – are setting the stage for debasement.
Globalization is losing momentum.
For a time, globalization was politically popular – cheap consumer goods became plentiful. But when the costs of globalization became clear, a backlash started. From 2000 to 2001, as many as one million factory jobs in the United States disappeared as a result of globalization. The empty factories in the Rust Belt stand as a testament to the fallout. Donald Trump’s anti-globalization rhetoric helped propel him to the White House in 2016. European populists likewise rail against globalization.
“Put simply, we traded good jobs with strong wages for cheap imports at big box retailers.”
A new era of capital mobility has led to more intense volatility in financial markets. And it’s no longer just factory workers who are losing jobs to overseas workers. Programmers and accountants in low-wage countries can underbid high-skilled workers in the United States. This reality has left the political landscape ripe for anti-immigration fervor. While immigrants typically take the jobs that native-born workers don’t want, the rhetoric overwhelms the facts. While globalization has obvious downsides, a return to protectionism would be harmful to the global economy. The best outcome is “slowbalization” – a gradual unwinding in which the United States and China would no longer trade microchips and other strategic items, but could still trade low-tech goods.
Computers are learning to think, a development that could reshape the economy.
For a time, artificial intelligence seemed the stuff of science fiction. Now, though, machines are catching up to humans in their ability to learn. Technologists are racing to create ever-more sentient machines. Robots are successfully tackling tasks as varied as building houses and performing brain surgery. While computers have long been good at repetitive tasks, their capabilities are growing. Not even creativity and empathy are the sole realm of humans: Artificial intelligence is writing pop songs and producing paintings. Machines are learning to work as home health aides. An Oxford University study concluded that 47% of US workers could be replaced by machines in the coming years.
“Megathreats are careening toward us. Their impact will shake our lives and upend the global order in ways no one today has ever experienced.”
The introduction of machines into the workplace hasn’t been entirely seamless. In 2015, an autoworker in Germany and a factory employee in Michigan were killed by robots. Walmart tested inventory robots but decided in 2020 that humans did the job more efficiently. But the machines are getting smarter by the year. Home Depot, for instance, relies on machines to anticipate future demand and dictate inventory decisions. Retailers spent $85 billion on AI in 2021, and that investment was predicted to increase to $200 billion in 2025.
“The flowering of artificial intelligence might alter human life beyond recognition.”
When workers are displaced by machines, the outcome isn’t always bad. For instance, ATMs took away a main task performed by bank tellers – but after introducing ATMs, banks built more branches and shifted the duties of human workers. But the widespread dislocation of workers by machines could expand the labor market “precariat” – educated workers who are displaced by machines and are forced to survive through unpredictable gig work. If AI leads to widespread unemployment, the US government might be compelled to provide universal basic income, a stipend that could provide the jobless with subsistence payments.
About the Author
Nouriel Roubini is professor emeritus of economics at New York University’s Stern School of Business, and the founder and chairman of Roubini Macro Associates.
Table of Contents
Part I Debt, Demographics, and Dangerous Policies
Chapter 1 The Mother of All Debt Crises 11
Chapter 2 Private and Public Failures 30
Chapter 3 The Demographic Time Bomb 47
Chapter 4 The Easy Money Trap and the Boom-Bust Cycle 59
Chapter 5 The Coming Great Stagflation 87
Part II Financial, Trade, Geopolitical, Technological, and Environmental Catastrophes
Chapter 6 Currency Meltdowns and Financial Instability 113
Chapter 7 The End of Globalization? 144
Chapter 8 The AI Threat 167
Chapter 9 The New Cold War 189
Chapter 10 An Uninhabitable Planet? 216
Part III Can This Disaster Be Averted?
Chapter 11 Dark Destiny 241
Chapter 12 A More “Utopian” Future? 261
The book is a warning and a wake-up call for the world to face the ten overlapping and interconnected threats that could lead to the worst economic, social, and environmental catastrophe of our lifetimes. The author, Nouriel Roubini, is a renowned economist who predicted the 2008 global financial crisis and is known as “Dr. Doom” for his pessimistic outlook. He argues that we are heading toward a Great Stagflation, a combination of high inflation, low growth, and high unemployment, that will make the 1970s look like a walk in the park. He identifies the ten megathreats that are causing this scenario and explains how they interact and reinforce each other. The ten megathreats are:
- The Debt Crisis: The world is drowning in debt, both public and private, that is unsustainable and will eventually trigger a global default or restructuring.
- The Money Trap: The central banks have printed too much money to stimulate the economy, but this has created asset bubbles, distorted markets, and eroded the value of money.
- The Trade War: The rise of protectionism, nationalism, and populism has led to a breakdown of global trade and cooperation, resulting in higher tariffs, lower growth, and geopolitical conflicts.
- The Superpower Competition: The rivalry between the US and China for global dominance has escalated into a new Cold War that threatens to undermine the global order and stability.
- The Techlash: The backlash against the big tech companies for their monopoly power, privacy violations, tax evasion, and social media manipulation has resulted in more regulation, litigation, and fragmentation of the digital space.
- The Climate Emergency: The climate change crisis has reached a tipping point that requires urgent and radical action to reduce greenhouse gas emissions and adapt to the inevitable impacts of global warming.
- The Urban Disaster: The rapid urbanization of the world has created megacities that are vulnerable to natural disasters, pandemics, crime, terrorism, and social unrest.
- The Demographic Time Bomb: The aging of the population in the developed world and the youth bulge in the developing world have created imbalances and pressures on the labor market, social security, health care, education, and migration.
- The Inequality Explosion: The widening gap between the rich and the poor, both within and across countries, has fueled resentment, anger, and violence among the marginalized and disenfranchised groups.
- The Populist Backlash: The dissatisfaction with the status quo and the loss of trust in the elites and institutions have given rise to populist movements that challenge democracy, liberalism, and human rights.
The book also offers some suggestions on how to survive these megathreats by adopting a more resilient, adaptable, and cooperative mindset and behavior. The book urges us to act now before it is too late.
The book is an eye-opening and alarming read for anyone who is concerned about the future of humanity. It is well-written, clear, and engaging, with plenty of data, charts, and examples from various countries and sectors. The author does a great job of presenting his analysis and arguments in a logical and convincing way, without being overly technical or academic. He also provides a balanced perspective on each megathreat by acknowledging its causes, consequences, uncertainties, and possible solutions. He does not sugarcoat or exaggerate his predictions but rather bases them on facts and evidence. He also does not claim to have all the answers or solutions but rather invites us to think critically and creatively about them.
The book is suitable for both beginners and experienced readers who want to improve their skills and knowledge in the field of economics, politics, sociology, and ecology. It is also relevant for anyone who wants to learn more about the current challenges and opportunities that we face in our personal or professional lives. The book is inspiring and empowering as it shows how we can make a difference by being more aware, informed, responsible, and proactive. The book is a must-read for anyone who wants to understand the megathreats that imperil our future and how to survive them.
I hope you find this summary and review helpful. If you want to learn more about the book or the author you can visit his website here or read some reviews from other sources here or here. Thank you for your interest in this topic.