'Perfect Storm' Of Recession, Debt, Out-Of-Control Inflation Coming

A 'perfect storm' of recession, debt, and out-of-control inflation is coming for markets this year, 'Dr. Doom' Nouriel Roubini says

Jennifer Sor

• A recession, a debt crisis, and stagflation will hit the US economy this year, Nouriel Roubini said.
• Roubini, aka Wall Street's "Dr. Doom," has said for months another financial crisis will hit.
• Central bankers will be forced to quit their inflation fight, with out-of-control prices, he said.

A "perfect storm" is brewing, and markets this year are going to get hit with a recession, a debt crisis, and out-of-control inflation, the economist Nouriel "Dr. Doom" Roubini said.

Roubini, one of the first economists to call the 2008 recession, has been warning for months of a stagflationary debt crisis, which would combine the worst aspects of '70s-style stagflation and the '08 debt crisis.

"I do believe that a stagflationary crisis is going to emerge this year," Roubini said Thursday in an interview with Australia's ABC.

With consumer inflation still sticky at 6.4%, Roubini said he estimated that the Federal Reserve would need to lift benchmark rates "well above" 6% for inflation to fall back to its 2% target.

That could spark a severe recession, a stock-market crash, and an explosion in debt defaults, leaving the Fed with no choice but to back off its inflation fight and let prices spiral out of control, he added. The result would be a steep recession, anyway, followed by more debt and inflation problems.

"Now we're facing the perfect storm: inflation, stagflation, recession, and a potential debt crisis," Roubini said.

He has remained ultrabearish on the economy, despite the market's growing hope that the US could skirt a recession this year.

Though more bullish commentators are making the case for a healthy rebound in the S&P 500, which fell 20% last year, Roubini has previously said the benchmark stock index could slide another 30% as investors battled extreme macro conditions.

"They will continue to go down," he said of stocks, pointing to the recent sell-off as investors priced in higher interest rates from the Fed. "The market is already correcting."

He urged investors to protect themselves by choosing inflation hedges, such as gold, inflation-indexed bonds, and short-term bonds. Those picks are likely to beat stocks and bonds, he said, which could suffer.