eResearch | Nouriel Roubini is a distinguished American economist. In his latest dissertation for Project Syndicate, Mr. Roubini paints four critical scenarios whereby any one of them could result in a global economic recession and/or a financial crisis. One or more, then, could be cataclysmic.
The first scenario Roubini puts forward is President Trump’s confrontation with China. The possibility of the United States and China entering into a new Cold War over trade, currency manipulation, and technology-stealing could lead to economic devastation in both countries. A protracted downturn in manufacturing, industrial production, mutual trade, capital spending, provision of services, and domestic consumption could easily result in the USA going into an economic recession and dragging much of the world with it.
The second scenario contemplates a military conflict breaking out between the USA and Iran, with the unfortunate result that international oil prices would likely soar. Significantly higher oil prices could cause stagflation, which is a mix of recession with increasing inflation. History provides several examples of this occurring, namely, the 1973 Yom Kippur War, the 1979 Iranian Revolution, and Iraq’s 1990 invasion of Kuwait. The fall-out, internationally, of each of these negative events took a considerable time to resolve.
The third scenario is a no-deal Brexit. Although Brexit itself is unlikely to cause a global recession, it could certainly cause one to occur in Europe, where many countries are already teetering on the brink. A full-scale economic recession in Europe would likely cause a ripple effect globally, with slower economic growth and possible currency disputes.
The fourth scenario is a full-fledged crisis in Argentina. If the Peronist candidate defeats the incumbent President in next month’s election, then this could put the country on a collision course with the International Monetary Fund, which has loaned the country billions of dollars. Problems of this nature could result in a flight of capital and lead to similar crises occurring in other highly-indebted countries, of which there are many.
In all four scenarios, each of the combatants wants to “save face” but none wants to “blink” first in this fascinating international “game of chicken”.
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