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want to give you a little window right now before we get to the present moment of what noel and i have lived there was you and i in davos at a hotel it was a late night and we sat there and we penciled out the reversion of the mean of the housing market and you said it's got to end and it did a year later maybe 18 months later bring us forward now that we are so debt encumbered do we have the degrees of freedom that we had when you and i sat at that quiet bar in davos well my concern is that uh compared to a decade ago that levels both private and public are much higher than before 20 years ago that to gdp ratio globally was about 200 of gdp right now it's 360 and rising in advanced economies is 420 percent of gdp and rising in china is 330 percent of gdp and rising so my concern is that we are in a dead trap it's not just fiscal dominance but when central banks gonna want to essentially phase out unconventional monetary policy given the debt ratios there is a risk of a crash in the bond market in the credit market the stock market economy and therefore they'll be in that trap and unable to normalize policy rates that's why i see inflation ahead dr roubini i am so honored that you're here i am pleased to announce folks that barry eichen greene's new book on debt is my book of the year and this is a guy to talk to about it i can green spans from golden fetters over to this new debt crisis now how do you interpret the outcome of this build up in debt which is life at the zero bound well we're in a situation in which in normal times we're not reducing debts and deficits well whenever there is a crisis then we have to backstop the financial system there is more buildup of public debt there is more build up of private debt because with zero policy rates or negative police rates or quantity visiting credit disease is cheap so we are in that super cycle where both in good times and in bad times debt ratios are rising and therefore eventually central banks are in a trap people said they're going to normalize policy rates but with these levels of private and public debt if they were trying to do that there'll be a market crash an economic crash and therefore i think the path of least resistance given that that risk is going to be to wipe out the real value of nominal data fix interest rates with higher inflation that's one of the reason why i see loose monetary policy lose fiscal policy loose credit policy and eventually inflation being the source of the wiping of the real critical story i went through the new european paintings gallery at the met this week and noyo speaks of the old world that you symbolize are we going to do the same thing they did in venice in the city-state of the 15th century which is inflate our way out of our present challenges well we have a huge amount of debt and deficit what are the options are we going to cut government spending politically the pressure everywhere in the world is to do more spending to essentially deal with income and wealth inequality are we going to raise taxes on the wealth in the reach there's going to be constraints on that so there'll be constraints they're going to keep implied the deficit remain high and therefore the path of least resistance is going to be to monetize them and try to wipe out with higher inflation the real value of nominal fixed interest rate debt of course over time that is going to reprice short-term debt is going to be higher interest rates with higher volatile inflation inflation this premium going to go higher so that's going to be a solution in the short term and eventually high debt ratios with real rates rising over time is going to imply that defaults because it'll be unsustainable that situation both in the private sector and in the public sector in a number of countries so i see both inflation and that crisis i had yes john here good to catch up with you again buddy great to have you on with us on the show walk me through what that means for trend growth for the next couple of years then through the next 10 years for that matter given everything you've just described well we have on one side that ratios are unsustainable and as i pointed out the current mild stagflation where growth is lower and inflation is higher is not just driven by short-term supply bottlenecks both in goods market and the labor market i pointed out that i see over the medium term nine negative supply shocks gonna reduce potential growth and increase cost of production over time very briefly what's gonna happen is the globalization and protectionism where i have balkanization of global supply chains aging of population in advanced economy and emerging markets restrictions to migration from south to north decoupling between us and china on trade technology data information will have global climate change going to increase the cost of energy and the cost of food prices where pandemic is going to disrupt again global supply chains we have also cyber warfare that's going to be a source of disruption production and finally the rising income and wealth inequality implies that it'll be monitoring fiscal policy trying to help workers labor unions and that's going to put upward pressure on wages so i see a situation which over the medium term will lose monetary fiscal and credit policy and these negative supply shocks you could end up over the medium term in a situation of stagflation like in the 1970s that's the situation i worry about noria this is far more nuanced than i think many people realize a lot of people are making this call for higher inflation based on loose fiscal policy monetary policy is staying easy you're focused almost overwhelmingly on these structural issues that you think are just going to stick beyond the fiscal the fiscal push that we've seen over the last year fading how underappreciated is that view when you go to events like this and have that conversation on the sidelines of economic forums like the one you're at well i think it's unappreciated because even those who worry about the rising inflation make an argument that once these short term bottlenecks are going to go away the source of inflation is going to be essentially overheating of the economy coming from the fact that monetary fiscal and credit poll is still to lose i agree on that side that aggregate demand is going to be in overheating but also worry about the medium-term aggregate supply of the economy and i see these global trends that are just the reversal of the forces that for the last 30 years kept inflation low all of them are reversing in a direction where potential growth is going to be lower cost of production is going to be higher and since monitoring fiscal policy and credit policy going to be loose eventually we end up with inflation and slower growth thus stagflation dr robini in a final question i want you to address for our audience on radio and tv the optimism you have of the american economic experiment i have fought for a decade plus of calling you dr doom i don't buy it for a minute you've got a lot of worries out there but state the optimism you have on the american experiment well on the american experiment i would say the most positive thing about it is that there is going to be a huge amount of technological innovation whether it's ai machine learning robotic automation all the essentially application coming of it gonna over time increase productivity growth significantly however i worry that ai automation robotic is going to also have negative spillovers it's going to increase income and wealth inequality it's going to lead to massive technological unemployment central bank responsibility can the central bank is the is the social guide of last resort do social policy within the central bank history well i i worry that the central banks now are an emission creep they start by worrying about inflation then growth then financial stability then income inequality then global climate change and a list of other factors and that mission creep implies that they're becoming highly unconventional and that's going to lead us to higher inflation over time you have to limit what you have to do and what you can do is only growth inflation and maybe financial stability so that mission grip is part of what's going to lead to higher inflation by unconventional monitor pulse being around for much longer than otherwise
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