ASH BENNINGTON: Can you talk to us about some
of the data that you're seeing, what's led
you to these conclusions?
Importantly, what could lead you to reverse
your conclusions in that it could potentially
be a shorter, shallower, less severe recession
that you anticipate?
What are you looking at that brought you to
these conclusions, and what could lead you
to reverse them?
NOURIEL ROUBINI: Now, before I go to that
one, let me finalize the point.
The argument about a greater recession becoming
greater depression is based essentially on
three key columns.
Column number one is the health response is
wrong.
We're doing mitigation, we're not doing suppression.
Even if we're doing suppression, the virus
is going to mutate and by next winter, we're
supposed to go back to growth after recession
of three quarters, we could have another spike
in the pandemic, even under suppression.
If we're not going to have suppression, but
only mitigation, it's going to be a nightmare
as any epidemiological model suggests.
[Indiscernible] we're going to go back another
recession.
Yes?
ASH BENNINGTON: I'm sorry.
What's the difference between those two points,
mitigation versus suppression?
NOURIEL ROUBINI: Well, mitigation is this
voluntary social distancing, isolation, stay
at home.
We're going to shut down maybe businesses
in New York and California, but the rest of
the country can all stay open, stores, business,
economic activity, restaurant.
We're doing mitigation is actually mitigation
light.
Suppression means sorry, guys.
We shut down every economic activity apart
from basic essentials.
You stay at home compulsory, you cannot work
unless you work from home, you cannot go out
unless you go and buy food and medicines and
take a walk for half an hour just to refresh
a day and no more.
I'm going to monitor you and we're going to
punish you.
If you do otherwise, fines, arrest, whatever.
Like in China, they used drones and robots
and literally an app that gives everybody
a green, yellow, or red card.
It's big brother in China, we don't want to
go there, but the reality is they have to
find an enforcement.
If you don't enforce it and you're basing
yourself on people doing it voluntarily, it's
going to be mitigation, mitigation light.
We're not doing even mitigation or doing mitigation
light in the US, let alone suppression.
Suppression was what China did for three months
and what Italy is doing right now.
We're not doing it.
That situation is going to go like wildfire
this year.
Then once we control it, and summer comes,
the winter is going to come, the virus is
going to mutate.
We're not going to have a vaccine for 18 months.
These antiviral therapeutics are in limited
supply.
We don't even know whether they work, guaranteed
by next winter, we'll have another spike in
the pandemic.
That's why people say it'd be a three quarter
recession, Q1, Q2, Q3, but then by the fall,
we're going to start growing again.
What if by default, we have another round
of this pandemic, then we're going to go into
a depression.
Two, by next year, if we're going in and out
of the recession is continuing, then we'll
have to do another 10% of GDP fiscal stimulus
and monetize it.
Then we end up into the inflationary situation
that I warned about that leads us to stagflation.
Then you have a nightmare of stagflation.
Three, as I pointed out in a number of pieces
recently, there's a wide range of geopolitical
risk, literally, a global rivalry between
US, China, Russia, Iran and North Korea and
this camp, they're going to try to disrupt
the US economy, the US political system, we'll
have the first global cyber war in this country
this year, and it's going to create geopolitical
chaos or politically, even violence after
the US election, let alone the risk of a war
between US and Iran in the Middle East.
There's this trifecta or Bermuda triangle
of the wrong health response, and the fact
that the virus is going to come back next
winter, of running out of policy bullets,
once we monetize fiscal deficit forever, and
then geopolitical shocks that are negative
supply, and they lead us to a geopolitical
depression.
That's a recipe for a greater depression.
ASH BENNINGTON: How do you quantify some of
those risks in order when you look at-- when
you talk about things like, example, cyber
war or the potential for a hot war in the
Gulf, how do you quantify what those risks
look like?
NOURIEL ROUBINI: Well, right now, markets
are completely disregarded.
In the case of a war between US and Iran,
they're saying, we killed Soleimani.
They sent a bunch of rockets, we restrain
ourselves.
Now, Iran is contained and they're not going
to do anything.
I think that is the wrong analogy of what's
happening in Iran, and I happen to be a Persian
Jew, I understand how the Iranian think, and
I told you simply and I could discuss it for
hours.
If Trump is reelected, the regime in Iran
is dead because four more years of sanctions
and other pressure means they collapse, and
their regime wants to stay in power.
The only one goal there is to stay in power.
That's a fair amount.
It's not going to be an external shock that
leads to regime change, but an internal revolution.
Suppose that Iran escalates a situation in
Middle East to proxies, initially attacking
Israel and Saudi Arabia, creating chaos with
his own proxies, and then [indiscernible]
US in a conflict, what's going to happen?
Oil now is at below 20, it's going to spike
250.
The stock is going to crash, and the recession
is going to become more severe, like '73,
like '79, like '99.
Once that happens, there's not going to be
a regime change in Iran.
Why?
Even if we bombed the hell out of Iran in
that war with an aerial campaign, the regime
stays in power.
You need to have 1 million boots on the ground
in order to have regime change in Iran.
We're not going to have 1 million people,
American soldiers going and invading Iran,
it's going to be air campaign.
Once you bomb Iran, even half of the country
is against the regime is going to support
the regime, because they're nationalist.
If you attack them, even those who hate Khomeini
are going to support in the same way they
went and rallied by the millions when we killed
Soleimani.
We're not going to have regime change in Iran,
Iran can cause a spike in oil prices, a collapse
of the stock market bigger than this one and
a more severe recession.
Once that happens, regime change is going
to occur not in Iran, but it's going to occur
in the United States.
Look at the three previous geopolitical shocks
in the Middle East, '73, '79 in 1990.
After these shocks were the recession, stock
market crash and inflation.
Guess what?
Carter beat Ford in '76, Reagan beat Carter,
and Clinton beat the Bush.
Three times you had a geopolitical shock in
the Middle East with an oil price spike, and
you had regime change not in Iran, in two
of those three cases, you had the regime change
in the United States.
That's what happened.
If we're going to have that shock, Trump is
dead, literally, politically.
The Iranians know it, and even if they're
weaker right now, in my view, not now but
by the early summer, they're going to escalate
the tension in the Middle East, and mark my
word, there'll be a war between US and Iran.
ASH BENNINGTON: That's also a very sobering
assessment.
