Thanks to Republicans, the Next Economic Crisis Will Be Worse

A poorly-timed stimulus, trade disputes and restrictions on immigration could make the next crisis worse.

Chicago Illinois
Chicago, Illinois at night (Unsplash/Max Bender)

Ten years after the collapse of Lehman Brothers, economists Brunello Rosa and Nouriel Roubini — who famously predicted the Great Recession — warn that the next financial crisis is already in the making.

Of the ten warning signs they see, six are due to the policies of the Republican government in the United States.

  1. Unsustainable fiscal stimulus (tax cuts, deficit spending) is pushing growth above its 2-percent potential.
  2. Because the stimulus was poorly timed, the American economy is now overheating and inflation is rising. The Federal Reserve will have to respond and that will push up interest rates.
  3. Trade disputes will slow growth and add to inflation.
  4. Restricting investment and technology transfers, restricting immigration and discouraging investment in the green economy adds stagflationary (low growth, high inflation) pressures.
  5. A conflict with Iran would trigger a stagflationary geopolitical shock not unlike the oil-price spikes of 1973, 1979 and 1990.
  6. When the crisis hits, American policymakers will not have the tools to address it. The space for fiscal stimulus is limited by massive public debt. Lawmakers have constrained the ability of the Fed to provide liquidity to non-bank and foreign financial institutions with dollar-denominated liabilities.

Rosa’s and Roubini’s conclusion:

When it comes, the next crisis and recession could be even more severe and prolonged than the last.