qas30

--== It is Not Random But Designs ==--
Having trading discipline is the beginning; keeping discipline is the progress;
staying discipline is the success

Wednesday, April 02, 2025

We’re moving closer to a financial crisis not further away

Published on Selasa, 12 Maret 2013 10.25 //

By Steve Wilson

In his book A Short History of Financial Euphoria, the economist John Galbraith shows that about every twenty years we conveniently and collectively forget just about everything that happened in the previous twenty years. As a result we lurch relentlessly from boom to bust, something which he attributes to “the breathtaking brevity of the collective financial memory”.
Today, just five and a half years after the world came to brink the of financial collapse, it seems we are already putting the memory of the Great Recession behind us. With stock markets testing their all-time highs, the feeling among investors is that a new financial crisis is becoming less and less likely. This is a dangerous view.
In a recent article Mark Mahaffey, Co-Founder and CFO of Hinde Capital, examines the financial stability of the world economy to see whether it is increasing or decreasing.
To answer this question he looks at the following variables:
  • Total income (current and future)
  • Total debt  (current and future)
  • Savings/ “firepower” (crisis protection)
First let’s look at income. The chart below shows nominal GDP growth projections for five major economies. Aside from China which continues to grow, and the US, which is likely to experience modest growth, nominal growth, i.e. these nation’s income, looks set to be poor, and real growth will struggle to be positive.
Nominal GDP projections based on recent trends (in $ bns)
Nominal GDP projections based on recent trends (in $ bns)
Chart courtesy of hindecapital.com
While income is struggling to keep pace with inflation, total debt, in many of the world’s major economies continues to rise. In fact, as mentioned previously, only three of the ten largest developed economies have begun the process of debt repayment, while the rest have actually increased their debt burden, three of them quite significantly.
Total debt is made up of private (household), public and financial sector debt, and while private debt and financial sector debt has for the most part been declining, public sector debt has been ramping up to compensate.
The bottom line
We are getting further and further into debt while at the same time we are producing less and less growth/ income with which to service it. It is clear then that we’re moving closer to a financial crisis not further away, and as Mark Mahaffey points out, “In 2007, the world had emergency firepower of 5% central bank rates that could be cut, and trillions of dollars of bonds yet to be purchased to back stop the system. What do we have today? Far, far less options.”
While it is likely that over time ultra-loose monetary policy will push the value of stocks and commodities higher, it is important that investors be mindful of these growing structural problems and design their portfolios accordingly.

Tags:

+ Discussion
Subscribe to our RSS Feed! Follow us on Facebook! Follow us on Twitter!
  • My GU Analysis This Month
    24/09/2011 - 0 Comments
    This Is mY GBP/USD Analysis for this month, I saw a candle pattern on W1 so.. Its a strong bullish reversal candle on W1 for GU, This month my trade plans is i am going to long GU.
  • Japan reports record annual trade deficit as energy prices soar
    03/02/2014 - 0 Comments
    Japan’s trade deficit has hit an all-time high as imports were swollen by higher energy prices and a weak yen.  Prime minister Shinzo Abe has been bidding to boost the Japanese economy with the help of huge monetary stimulus and public spending. But import costs have risen and the country’s…
  • Trader Or Gambler
    29/05/2013 - 1 Comments
    Why do you trade forex? Let me guess... Because you want to make a crapload of money and be able to buy anything you wish? While this is a perfectly valid reason, it will most likely lead to excessive greed and ultimately lead to your trading account's destruction. You might as well take your money to…
  • AUD_USD Trade Archieves
    14/11/2013 - 0 Comments
    I am only a passanger, i am nothing, so just keep going all the way with them…