The collapse of the US banking system can await due to the collapse of Silicon Valley Bank. This view was expressed in an interview with Fox Business channel by New York University economics professor Nouriel Roubini, who predicted the 2008 financial crisis.
“The United States is heading towards a credit crisis that will push the economy into recession.”
For Roubini, the danger lies in US regional banks. They offer mortgage loans to rent retail space and offices, and business loans to small and medium-sized companies. With the recent collapse of Silicon Valley Bank, these financial institutions should make it harder for Americans to get loans. This will lead to a credit crisis.
“A much more serious recession than before will increase the likelihood of a hard landing. “We will face a dangerous challenge for much of the American banking system.”
While discussing the signs that could point to the “bottom of the market”, he said “the worst is yet to come”.
In early April, Roubini said that hundreds of small banks in the US could be in technical default due to rising interest rates.
“When interest rates rise, the value of securities and loans falls. And then there are the big problems with liquidity and solvency.”
The professor said in an interview with Bloomberg TV.
He said that many portfolios of home loans with 30-year repayments accumulated on the balance sheets of credit institutions issued at fixed rates during the time they were kept at the same level by the US Federal Reserve System (FRS). Roubini estimated possible losses on such loans and securities at $1.8 trillion – total capitalization of $2.2 trillion.
On March 6, Nouriel Roubini expressed the view that financial markets are facing a “perfect storm” in 2023, a mix of recession, debt crisis and uncontrolled inflation.
“For inflation to return to its 2% target, the Fed will need to raise benchmark interest rates well above 6%. But such an increase could trigger a serious recession, a stock market crash and an increase in debt defaults,” Roubini reported to Business Insider.
According to him, the Fed will have no choice but to stop fighting inflation and let prices spiral out of control.
He added that all events related to the deterioration of the US stock market will lead to a global recession. The recession will be followed by new consequences in the form of rising debt and inflation.
According to the news of the British newspaper The Financial Times, last December Nouriel Roubini predicted a deep and prolonged depression in the global economy due to excessively high government debt.
According to him, the new recession will be deep and long – but the monetary authorities of Western countries say the crisis will be short and weak.
Roubini pointed out that one of the most dangerous moments is that America is currently experiencing the “highest inflation” of the last 60 years with 7.1 percent. The professor believes that in such situations, an increase in the interest rate “cannot result in a soft landing.”
The economist suggested that things were even worse in Europe. For example, the UK is facing stagflation (a combination of high inflation and lack of economic growth) and the Bank of England is preparing for an economic downturn for “at least the next five quarters”.
Also, the course of the world economy is complicated by extremely high public debt, which has risen from 220% of world GDP to 350% of world GDP in the last quarter century. Roubini stressed that this significantly reduces the ability of central banks to choose their anti-crisis policy options.
In November 2022, Roubini said that the rise of radical, authoritarian parties associated, among other things, with rising social inequality in various countries of the world, will be the main “mega-threat” to the global economy in the medium term.
“The global backlash against liberal democracy and the rise of radical, authoritarian parties on the far right and left is partly due to the sharp rise in income and wealth inequality. <….> The situation will worsen as jobs are lost, not because of trade and immigration, but because artificial intelligence, robotics and automation will lead to permanent technological unemployment.”
Roubini suggested it in an article he wrote for the British newspaper The Guardian.
According to him, if this process does not stop, “much more dangerous, aggressive, populist regimes” will come to power in various countries of the world. These factors, along with a host of economic problems, could plunge the global economy into a deep recession.
“This is how the economic crisis will look this time. Defaults for zombified households, firms, financial institutions, governments, and countries as central banks have to raise interest rates rather than lower them, as we have seen in recent decades, to combat inflation. <….> Private equity, property, venture capital and cryptocurrencies bubbles will burst now that the era of cheap money is over,” the economist said.