What is a stagflationary debt crisis? This is what economists think we are headed for.

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What is a stagflationary debt crisis? This is what economists think we are headed for.

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Let’s be clear: a “stagflationary debt crisis” is not what all economists think we are heading for, it’s what “Dr. Doom” Nouriel Roubini thinks is going to happen. Roubini has correctly predicted 25 of the last 3 recessions. The man wakes up thinking the world is going to end.

Stagflation is a period where the economy is doubly impacted by increased inflation and stagnant growth (or even a recession).

He also believes there will be a debt crisis, since personal and country-owned debt ratios are high so he thinks those markets will collapse as well.

“Stagflation” was a term coined in the 1970s for a period of simultaneous economic stagnation and price inflation. Ordinarily, inflation is driven by strong economic growth, but in stagflation, prices are getting higher *and* we’re producing less.

A debt crisis is any situation where large entities (banks, countries, mortgagers en masse, etc.) become unable to pay their debts. This usually happens when those entities borrow aggressively during times of economic growth, not anticipating what will happen during a recession. Debt crises are often brought on by economic downturns and can help to intensify/prolong them.

So putting it together, a “stagflationary debt crisis” is a debt crisis brought on by a period of stagflation. Inflation actually tends to make debts *easier* to pay off (the nominal value of the debt stays fixed while other sources of income increase), but this may be a case where the general recession in economic activity is enough to outweigh that.

Economic crises always remind me of that South Park episode that came out in response to the recession of 2008. [This scene](https://youtu.be/dvYvQeNeq3A) in particular is gold. “The Fed’s” reaction of how to deal with the insurance company about to go under pretty much sums up economic policy.

a stagflationary debt crisis is a type of debt crisis in which prices are rising (stagflation) and the economy is stagnant or contracting. This type of crisis is often accompanied by high levels of government debt and can be difficult to resolve.