Apocalypse now: has the next giant financial crash already begun?

Many indicators in global finance are pointing downwards – and some even think the crash has begun.

Let’s assemble the evidence. First, the unsustainable debt. Since 2007, the pile of debt in the world has grown by $57tn (£37tn).

The underlying cause of this debt glut is the $12tn of free or cheap money created by central banks since 2009, combined with near-zero interest rates. When the real price of money is close to zero, people borrow and worry about the consequences later.

Next, let’s look at the price of real things. Oil collapsed first, in mid 2014, falling from $110 a barrel to $49 now, despite a slight rebound in the interim. Next came commodities. Copper cost $4.50 a pound in 2011, but was half that in September.

In these circumstances, the only way in which the expanding credit mountain can be an accurate signal about the future is if we are about to go through a spectacular productivity boom. The technology is there to do that, but the social arrangements are not.

In short, as the BIS economists put it, this is “a world in which debt levels are too high, productivity growth too weak and financial risks too threatening”.

It’s impossible to extrapolate from all this the date the crash will happen, or the form it will take. All we know is there is a mismatch between rising credit, falling growth, trade and prices, and a febrile financial market.

Source: Apocalypse now: has the next giant financial crash already begun? | Comment is free | The Guardian

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2 thoughts on “Apocalypse now: has the next giant financial crash already begun?

  1. Guy Ropes

    I elected to bankrupt myself at around the time of the first crash. It’s the best policy to accept if faced with that situation: Do I or Don’t I. Get it over with. I had four different case workers on my predicament (at different times). The most puzzling part was that one of them – from Hong Kong – barely understood the English language, much less finance and wasn’t at all keen to know the details of my case. Another surreal part of the process in London is when all those (on any particular day) who have elected to take the leap, foregather at the Royal Courts of Justice to hand over to ‘the man’, the (in those days) near £300 that they had borrowed (somehow!) to get the ball rolling. About 80 of us were herded into a deserted office to wait to be individually called forward to another office to sign the appropriate documents. The atmosphere was subdued and getting no better when an office telephone rang………. and rang ……. and rang. One guy then ventured, “If that’s Barclaycard, tell ’em I’m not in”.

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