US heading towards 'stagflationary debt crisis', market may crash 50%: Nouriel Roubini

File image of economist Nouriel Roubini (Reuters image)

The world's major economies including the United States are heading towards a "stagflationary debt crisis", which may lead to the equity market crashing by around 50 percent, warned economist Nouriel Roubini, who is known as 'Dr Doom' for his forecast of the 2008 global recession.

The recession into which the US is likely to be plunged is worse than the previous financial crises, as the country's economy is currently showing symptoms akin to the stagflation crisis of the 1970s as well as the crippling recession which was seen in 2008, Roubini argued, in his column for the Project Syndicate.

While the US and global equities slide by around 35 percent in "plain-vanilla recessions", the drop would be more severe in the upcoming financial crisis due to the combined effect of soaring inflation and debt crisis, Roubini claimed.

"Because the next recession will be both stagflationary and accompanied by a financial crisis, the crash in equity markets could be closer to 50 percent," 'Dr Doom' wrote.

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Most central banks and fiscal authorities around the world must admit their mistake of considering the current round of inflation as transitionary, the economist said.

Roubini further noted that a section of the analysts are "dangerously naive" in considering that the impending recession will be mild and short-lived.

"There is ample reason to believe that the next recession will be marked by a severe stagflationary debt crisis. As a share of global GDP, private and public debt levels are much higher today than in the past, having risen from 200 percent in 1999 to 350 percent today," Roubini said.

In such a scenario, rising interest rates and rapid normalisation of monetary policy is likely to lead to "highly leveraged zombie households, companies, financial institutions", and governments into bankruptcy and default, the economist added.

Roubini's warnings assume significance as he was among the first set of experts, in the mid-2000s, who had predicted the "great recession" of 2008. He had raised alarm bells about the housing crisis around a year before it derailed the American economy.