In case you missed it last week:
The next financial crisis is coming, it’s a just a matter of time – and we haven’t finished fixing the flaws in the global system that were so brutally exposed by the last one.
That is the message from the International Monetary Fund’s latest Global Financial Stability report, which will make sobering reading for the finance ministers and central bankers gathered in Lima, Peru, for its annual meeting.
Massive monetary policy stimulus has rekindled growth in developed economies since the deep recession that followed the collapse of Lehman Brothers in 2008; but what the IMF calls the “handover” to a more sustainable recovery – without the extra prop of ultra-low borrowing costs – has so far failed to materialise.
“Balance sheets have become stretched thinner in many emerging market companies and banks. These firms have become more susceptible to financial stress,” the IMF says.
“Shocks may originate in advanced or emerging markets and, combined with unaddressed system vulnerabilities, could lead to a global asset market disruption and a sudden drying up of market liquidity in many asset classes,” the IMF says, warning that some markets appear to be “brittle”.
So as the US Federal Reserve lays the groundwork for a return to peacetime interest rates, from the emergency levels of the past seven years, financial markets face what the IMF calls an “unprecedented adjustment”; and the world looks woefully underprepared.
The IMF’s warning echoes a chorus of others. The Bank of England’s chief economist, Andy Haldane, has argued that the world is entering the latest episode of a “three-part crisis trilogy”. Unctad, the UN’s trade and development arm, would like to see advanced economies boost public spending to offset the downturn in emerging economies. The Bank for International Settlements believes interest rates have been too low for too long, encouraging too much risk-taking in financial markets. All of them fear that the global financial system is primed for a crisis.
Full article: Next financial crash is coming – and before we’ve fixed flaws from last one (The Guardian)