The Great Stagflationary Debt Crisis

12 Jan

The Great Stagflationary Debt Crisis

War leads to larger fiscal deficits, more debt monetization, and higher inflation on a persistent basis!

Nouriel Roubini is an economics professor emeritus at New York University’s Stern School of Business.  But he’s better known to some as “Dr. Doom” stemming from his correct call of the 2008 meltdown.

Roubini warns that wars burden national budgets, exacerbating already high debt levels and inflation.

Here is his assessment of the state of world conflicts today:  

The world is going through a form of “geopolitical depression” topped by the escalating rivalry between the West and aligned (if not allied) revisionist powers such as China, Russia, Iran, North Korea, and Pakistan. Cold and hot wars are on the rise. Russia’s brutal invasion of Ukraine could still expand and involve NATO. Israel – and thus the United States – is on a collision course with Iran, which is on the threshold of becoming a nuclear-armed state. The broader Middle East is a powder keg. And the US and China are facing off over the questions of who will dominate Asia and whether Taiwan will be forcibly reunited with the mainland.

Accordingly, the US, Europe, and NATO are re-arming, as is pretty much everyone in the Middle East and Asia, including Japan, which has embarked on its biggest military build-up in many decades. Higher levels of spending on conventional and unconventional weapons (including nuclear, cyber, bio, and chemical) are all but assured, and these expenditures will weigh on the public purse.

These factors make inflation “secular,” rather than “transitory,”  warns Roubini.  So you should plan on elevated inflation for a long time.  

Roubini at World Economic Forum, 2012. Photo: Moritz Hager

We will only add to Roubini’s description the observation that China’s surge of gold buying in the last two months may be preparation for a forthcoming conflict.  

“A conflict with China, would be fundamentally unlike the regional conflicts and counterinsurgencies that the United States has experienced since World War II, with casualties exceeding anything in recent memory,” warns a new report from the Center for Strategic and International Studies.  “The high losses would damage the United States’ global position for many years.”

In any case, “a great stagflationary debt crisis is upon us,” says Roubini.  And that means high unemployment, high inflation, and a major stock market crash.  

Furthermore, the crisis will be “deep and protracted,” he says.

Is your gold and silver portfolio up to date?  This would be a good time to make sure you are protected from war, crashes, and high inflation.