Why We’re Heading Towards Another Financial Crisis
This week, Bloomberg ran a pretty good article on the “four big risks” after the 10 year anniversary of the collapse of Lehman Brothers in 2008. Yes, I think there’s a significant chance that we have another 2008-esque meltdown on our hands. We can see this coming from a mile away, but the big question for us in intelligence is to describe the follow-on effects of this events. That begins locally, on the tactical or community level. (I wrote about that last month.)
Here are the Bloomberg writers’ “four big risks”:
- “[T]here is a record level of indebtedness in the global economy”. Total global debt has risen $70 trillion dollars since the Lehman collapse. “[T]here is a continuing decline in the average credit quality of outstanding loans and bonds”. America’s debt-to-GDP ratio sits at 105 percent, and that’s not counting unfunded liabilities. That’s a lot of debt not only to be paid back, but also to be serviced.
- Central banks around the world have $15 trillion of debt on their balance sheets. Interest rates are still low, although slowly rising. During the past three recessions, the U.S. Federal Reserve cut interest rates by an average of five percent. Today, the federal funds rate is 1.82 percent. In other words, the Fed is in a race to raise interest rates to 3-5 percent so they can cut them again during the next recession. Raising interest rates cools down the economy, so the Fed is YET AGAIN in this precarious balancing act of raising interest rates (but not too quickly) that it historically is unable to manage.
- Americans are moving farther Left or farther Right, which is erasing the middle moderate position that somewhat kept far Left and far Right politics in check.
- Finally, the authors say that the U.S. has an “open chair” policy where it concerns global leadership. According to them, Trump is taking a wrecking ball to the international order and the European Union is suffering the wrath of political movements fragmenting the European continent. To be fair, Europe was beginning to fragment long before Candidate Trump. But they still do have a point: the migrant crisis and the reactionary backlash against globalism are leading to instability in Europe. That’s a problem of their own making and has nothing to do with President Trump, however.
I don’t agree with every single conclusion in this article, but the authors do a good job of pointing out that U.S. economic fundamentals are actually on more shaky ground now that they were pre-2008. Yes, unemployment is at record lows and we’re feeling the effects of the Trump bump. But economic growth, stagnation, and recession are cyclical. This is the “boom bust” cycle that Ron Paul, Hayek, von Mises, and other have warned about for decades. The last “boom” was muted due to Obama’s atrocious economic policies and we’re seeing right now what should have been our post-recession recovery. That didn’t happen, we had probably the worst post-recession performance on record, and we’re approaching the bust part of the cycle. Candidate Trump even warned that the U.S. economic picture was a train wreck over the long term, so it should come as no surprise that it will be President Trump’s problem, perhaps before his first term is up.
All this said, I encourage everyone to consider how this next recession and/or financial crisis will affect you on the local level. So many times, I hear of folks preparing for a cyber attack or systems disruption, financial collapse, what-have-you. The point I want to make is that you’re not actually preparing for those events, you’re actually preparing for the effects of those events. If we don’t understand the second- and third-order (plus) effects and how these events will impact us at the local level, then we’re not really as prepared as we should be.
Here are Forward Observer, we do have an online training subscription where I’m leading students through the a series of tasks and skills on intelligence, threat analysis, early warning, and disaster planning. Join us and get equipped with the knowledge and skills to make yourself a valuable member of a team for an uncertain future we’ll all need to navigate.
Always Out Front,
Samuel Culper
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