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Nouriel Roubini warns there's a risk of a 'Greater Depression' as coronavirus spreads

Julia La Roche
Correspondent

The coronavirus pandemic is pushing the U.S. toward recession that’s increasingly at risk of morphing into something far more serious, economist Nouriel Roubini told Yahoo Finance on Tuesday, which he said could easily become a “Greater Depression.”

Rising COVID-19 infections worldwide have pummeled financial markets and forced entire economies to impose a lockdown on its citizens. The turmoil is something Roubini — a famed market observer who foresaw the 2008 crisis — predicted would be more severe than the last recession.

“There will be a Great Recession more severe than the global financial crisis. That’s the consensus,” Roubini told Yahoo Finance.

“The question is — are we going to have a three-quarter severe recession worse than ten years ago, and then by the fourth quarter we have a recovery? Or, is it going to get worse?” he asked.

He warned if there isn’t a “full lockdown” of the economy “for a month or two” like what China did and what Italy is doing now, “this thing is going to explode.”

“[The] idea of reopening everything in a week, after two weeks, doesn’t make any sense,” he added.

‘Far worse’ than a depression 

The economist explained that the downturn so far has been “far worse even than the Great Depression,” noting that the free-fall of output happened in a matter of three weeks rather than years or even months.

Amid hopes of a sharp ‘V-shaped’ recovery from the crisis, Roubini said all the signs being transmitted by the stock, credit and labor markets suggest something far more bleak.

“It’s not a 'V.' It’s not a 'U.' It’s not an 'L.' It’s an 'I'. It’s a straight line down,” he said.

“So, right now, we are on the verge of something that could be worse than the great financial crisis, there are conditions under which we could get into another Greater Depression,” Roubini stated.

On the bright side, central banks are doing everything necessary, or what he calls “kitchen sink” monetary policy. The Federal Reserve’s move to buy a virtually unlimited amount of bonds while backstopping other key sectors has surprised economists with its aggressiveness.

However, Roubini argued that fiscal policy is “behind the curve.” A $2 trillion stimulus bill is bogged down in Congress, amid political sparring between Democrats and Republicans over its terms.

“We’ll see whether this package is passed, but we need similar types of packages, not just in the United States, but in Europe and other parts of the world,” Roubini told Yahoo Finance.

“But I think the key thing for this market and for the economy is going to be to deal with this spread of the pandemic because markets are not going to stabilize,” he added.

As the rate of the virus’ spread increases, the likelihood of reopening major economies looks dim. 

“Economic activity is already worsening more than expected. Therefore, the economy can still tank,” the economist said. “The market can go lower after the good news of today. And if that happens, and contagion is not stopped, then we’ll have the conditions for a depression, not a recession.” 

Julia La Roche is a Correspondent at Yahoo Finance. Follow her on Twitter