Nouriel Roubini, an economist known as "Dr Doom" for his pessimistic market views, said that excessive fiscal stimulus by central banks around the world could lead to stagflation, a situation where there is high inflation alongside a recession.
According to Roubini, unlike the 2008 global financial crisis when the collapse of an asset bubble created a credit crunch, the problem today is that we are recovering from a negative aggregate supply shock. Amid such conditions, "overly loose monetary and fiscal policies could indeed lead to inflation or, worse, stagflation".
Roubini said that in today’s context, we will need to worry about a number of potential negative supply shocks, both as threats to potential growth and as possible factors driving up production costs.
"These include trade hurdles such as de-globalization and rising protectionism; post-pandemic supply bottlenecks; the deepening Sino-American cold war; and the ensuing balkanization of global supply chains and reshoring of foreign direct investment from low-cost China to higher-cost locations," he added.