Stocks Could Drop 20%, No Safe Haven: Dr. Doom

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    US and global stocks are still likely to fall because the corporate and economic news will be worse than expected, Nouriel Roubini, RGE Monitor Chairman, told CNBC.

     

    Investors will be hit by the realization that many banks are bankrupt, that companies will have to rein in debt and sell assets and that emerging markets may get into trouble, Roubini said.

    "I think that there's a 20 percent downside risk to US and global equities," Roubini told "Squawk Box Europe."

     

    The transmission mechanism oiling the wheels of the banking system is broken, he said, adding that "banks are getting the money and they are hoarding it, they're not lending it," because they expect higher losses.

    There is no safe haven from the crisis as all countries are affected, and the collapse in aggregate demand may bring about prolonged deflation, Roubini added.

    "We have to worry today about not ending up like Japan. That's the risk for the global economy," he said.

    The rise in the price of gold is a signal of fear that countries and corporations may default on debt rather than of worries about future inflation, and the precious metal is used as a "safety valve."

     

    Falling stock prices and very low bond yields are signaling depression, while credit spreads are still very wide, indicating fear of defaults, according to Roubini. And even the fast-growing Asian economies aren't spared.

    "If you look at the data in emerging markets and around Asia, East Asia, there is a hard landing," he said. "All the numbers out of China suggest… the manufacturing sector is already in a recession."

    Protectionism is the next danger, as history shows that it prolonged the 1930s depression, he said, regarding remarks by U.S. Treasury Secretary Timothy Geithner that China was "manipulating" its currency to help its exports.

     

    "Certainly starting a war with China on the issue of the currency is very, very dangerous," he said. "The US is relying on the kindness of strangers -- Russia, China, the Gulf States … to finance a huge, and growing, twin current account and fiscal deficit," Roubini said.

    "If China were to pull the plug on financing the US dollar, then we'd have a freefall of the dollar," he added.

    For more stories from CNBC, go to cnbc.com.