‘Dr. Doom’ Nouriel Roubini Sounds Alarm of Banking Crisis, Central Banks in Trilemma – Economics Bitcoin News


Economist Nouriel Roubini has recently expressed his thoughts on the state of U.S. banking in a published opinion editorial. In the article, Roubini asserts that “most U.S. banks are technically near insolvency, and hundreds are already fully insolvent.”

Roubini: ‘Liquidity Support Cannot Prevent This Systemic Doom Loop’

Famed economist Nouriel Roubini, also known as “Dr. Doom,” recently penned an opinion editorial published by MarketWatch. The article looks at the current state of the U.S. banking sector, and Roubini points out how U.S. banks are carrying unrealized losses on securities that amount to $620 billion. Furthermore, Roubini mentioned the U.S. Federal Reserve’s rate hike and said, “Making matters worse, higher interest rates have reduced the market value of banks’ other assets as well.”

In light of this situation, Roubini argues that “U.S. banks’ unrealized losses actually amount to $1.75 trillion, or 80% of their capital.” Additionally, Roubini emphasizes that “the ‘unrealized’ nature of these losses is merely an artifact of the current regulatory regime, which allows banks to value securities and loans at their face value rather than their true market value.” Roubini continues his criticism of the U.S. banking system, stating:

In fact, judging by the quality of their capital, most U.S. banks are technically near insolvency, and hundreds are already fully insolvent.

Dr. Doom Says ‘Everyone Should Be Preparing for the Coming Stagflationary Debt Crisis’

In the op-ed, Roubini discusses a concept called the “deposit-franchise,” and he asserts that depositors can sense deterioration in deposit safety, leading to a lack of trust. “If depositors flee, the deposit franchise evaporates, and the unrealized losses on securities become realized. Bankruptcy then becomes unavoidable,” Roubini opines. The economist also believes that the U.S. economy may face a harder landing due to the credit crunch caused by banking stress and referred to it as a “house of cards.”

Roubini stresses that the world’s central banks “face not just a dilemma but a trilemma.” Furthermore, regional banks, which are essential for financing small and medium-sized businesses and households, are particularly affected, Roubini opined. Therefore, the trilemma for central banks is presented, as interest rate hikes aimed at achieving price stability may result in a recession and higher unemployment, while also increasing the risk of severe financial instability.

The economist dubbed “Dr. Doom” concludes that the trilemma of challenges is compounded by negative aggregate supply shocks such as the Covid-19 pandemic and the war in Ukraine. Roubini’s op-ed adds:

A severe recession is the only thing that can temper price and wage inflation, but it will make the debt crisis more severe, and that in turn will feed back into an even deeper economic downturn. Since liquidity support cannot prevent this systemic doom loop, everyone should be preparing for the coming stagflationary debt crisis.

Tags in this story
aggregate supply shocks, banking sector, Bankruptcy, capital, Covid-19 pandemic., credit crunch, deposit franchise, depositors, Dr. Doom, Economist, face value, Federal Reserve, Financial Instability, higher interest rates, households, market value, medium-sized businesses, Nouriel Roubini, Opinion Editorial, price stability, Recession, regulatory regime, roubini, Securities, Small Businesses, trust, U.S banks, U.S. economy, Unemployment, unrealized losses, war in Ukraine

What steps do you think should be taken to address the potential banking crisis and the trilemma facing central banks? Do you agree with Roubini’s op-ed? Share your thoughts about this subject in the comments section below.

Jamie Redman

Jamie Redman is the News Lead at Bitcoin.com News and a financial tech journalist living in Florida. Redman has been an active member of the cryptocurrency community since 2011. He has a passion for Bitcoin, open-source code, and decentralized applications. Since September 2015, Redman has written more than 6,000 articles for Bitcoin.com News about the disruptive protocols emerging today.

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