With the global economy squeezed from all sides, the Great Stagflation has arrived Project Syndicate

By Nouriel Roubini

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Finally, cyberwarfare remains an underappreciated threat to economic activity and even public safety. Firms and governments will either face more stagflationary disruptions to production, or they will have to spend a fortune on cybersecurity. Either way, costs will rise.

On the demand side, loose and unconventional monetary, fiscal, and credit policies have become not a bug but rather a feature of the new regime. Between today’s surging stocks of private and public debts (as a share of GDP) and the huge unfunded liabilities of pay-as-you-go social-security and health systems, both the private and public sectors face growing financial risks. Central banks are thus locked in a “debt trap”: any attempt to normalize monetary policy will cause debt-servicing burdens to spike, leading to massive insolvencies, cascading financial crises, and fallout in the real economy.

With governments unable to reduce high debts and deficits by spending less or raising revenues, those that can borrow in their own currency will increasingly resort to the “inflation tax”: relying on unexpected price growth to wipe out long-term nominal liabilities at fixed rates.

Thus, as in the 1970s, persistent and repeated negative supply shocks will combine with loose monetary, fiscal, and credit policies to produce stagflation. Moreover, high debt ratios will create the conditions for stagflationary debt crises. During the Great Stagflation, both components of any traditional asset portfolio—long-term bonds /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -3.06% and U.S. and global equities—will suffer, potentially incurring massive losses.

Nouriel Roubini, professor emeritus of economics at New York University’s Stern School of Business, is chief economist at Atlas Capital Team and author of the forthcoming “ MegaThreats: Ten Dangerous Trends That Imperil Our Future, and How to Survive Them ” (Little, Brown and Company, October 2022).

This commentary was published with permission of Project Syndicate—From Great Moderation to Great Stagflation