2001, 2008 & 2020: ‘Millennials haven’t had a break from a crisis’

By Jit Kumar
Raoul Pal, former Goldman Sachs fund manager

Covid to trigger insolvency event and affect the spending habits of those in their 20s and 30s, says former Goldman Sachs fund manager

The millennials haven’t had a break from a crisis—first it was 2001, then the 2008 recession and now the Covid pandemic. And the economic fallout of this crisis will significantly change the spending habits of the millennials, already burdened with debt, says former Goldman Sachs fund manager Raoul Pal.

In a podcast interview with Refinitiv, the founder of business and finance media platform Real Vision has claimed that though no age group will be able to escape the Covid crisis, the millennials are going to be more cautious on how and where to spend their hard-earned money—having these young adults in their 20s and 30s already seen the two other financial crises.

“… the millennials, well, they were born late 80s when they were young as teenagers, they saw the first crisis in 2001. Then they got to university and they graduated in the middle of the next crisis (2008 recession). These guys have never really been given a break,” he says.

Pointing out that the millennials may soon lose faith in the pensions system due to an impending solvency crisis, Pal says that this age group now realises that they have student loans to pay, they have car loans to meet, “and they’re trying to get on the housing ladder and they can’t”.

“So I don’t see a world where we return to consumption. This is scarring. It’s like a war that’s just gone on and we’re not finished,” he says.

Consumer spending is considered to be a major driver for economic growth of any country.

In the interview, Pal also reiterates his warning of the history’s worst insolvency event in the wake of the Covid pandemic, which is different from liquidity crisis.

“Liquidity is no access to capital. Solvency is no access to cash flows. So if you think you as a householder and you have a mortgage. The only way of paying that mortgage is to have an income. If you don’t have an income, or if your income is less than your mortgage, you default on your mortgage.

“And the same is true of corporations. Even if somebody kept lending you more money, it doesn’t help you because you can’t pay the cash, you’re up to here. That’s a solvency event,” he says.

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