Nouriel Roubini, the renown economist nicknamed “Dr. Doom”, recently shared a point of view article covering the turmoil in United States banking sector. According to Roubini, U.S. banks possess “unrealized losses” amounting to $1.75 trillion, this implying an insolvency of most of the U.S. banks. The economist also noted that such losses are being overlooked due to the current regulations that allow banks to value their securities and loans at face value. In addition, Roubini claims that negative factor as the Federal Reserve’s rate hike and credit crunch, may result in a decrease in trust from depositors, leading to increase of 3rd party borrowings for banks.

At this point, Roubini believes that central banks are facing a trilemma - increase in rates to achieve price stability, which may result in decreased security for depositors and increased risk of financial instability. Moreover, Roubini specified that regional banks that are major providers of loans to small and medium-sized businesses and households are more strongly affected.

In conclusion, Roubini implies that the only way out might be having a severe recession to temper inflation, only if we're not to fall into a systemic doom loop that liquidity support alone cannot undo. The economist is of the opinion that prepares should be made in order to survive the coming stagflationary debt crisis.



Other News from Today