There has been much speculation recently in the press about the impending global crash and the inevitable fallout it will cause. While this remains speculative, for many, many expert economists opine that this speculation is, in fact, already a reality. Here, the author analyses some of the reasons being given from some of the most well-known economists around the world and has some more bad news for us all. The predicted 2020 global recession might be optimistic.
The predictions are now coming in thick and fast. It appears that there’s a foregone conclusion that 2020 is the date that crash 2.0 will wreak havoc once again. Unfortunately, these predictions have become truer. As many businesses have filed for bankruptcy and closure, Economies across the globe are failing. As of writing, 2020 is already in its second half. But, there seems to be no light at the end of the tunnel, yet. “Although consumer bankruptcy filings are down on the year, we predict that we will see a sharp increase in the latter half of 2020 and into 2021”, stated Ben Tejes Co-Founder and CEO of Ascend Finance, which has built bankruptcy and debt settlement calculators.
The Predictions Of Well-Known Economists And Journals
The Independent has said: “Next global financial crisis will strike in 2020, warns investment bank JPMorgan – sparked by automated trading systems.”1
Forbes: “2020s Might Be The Worst Decade In U.S. History – triggered by contagion from a global credit crisis.”2 This Forbes prediction has never been more accurate. Today, as more individuals have fallen into debt, there’s a global credit crisis. The pandemic has brought about the closure of businesses. Hence, economies have suffered; jobs are lost. Just to meet their day-to-day needs, many have fallen into debt and are still paying for it now.
Mark Zandi, chief economist at Moody’s Analytics, said that “2020 is a real inflection point.”
True Tamplin from Finance Strategists said, “Although we’ve seen a V-shaped recovery in the markets, the fundamental metrics which create long-term growth are in shambles. What we’re seeing is the direct result of huge stimulus packages, low interest rates, low taxes, and other levers being pulled to temporarily prop up the stock market.”
The newspapers, magazines and credit agencies are speculating. (Find out more about best credit card after bankruptcy.) But what about those in the know?
The Predictions Of Economic Institutions
Apart from the economic journals above, here are also some analyst forecasts from noted economists in the academe.
Nouriel Roubini,3 a professor at NYU’s Stern School of Business. He is also a Senior Economist for International Affairs in the White House during the Clinton Administration. He has also worked for the IMF, the US Federal Reserve, and the World Bank.
Roubini predicts that the current global expansion will likely continue into next year, but warns that the conditions will be ripe for a global recession in 2020.
He makes the point that global stimulus packages are coming to an end, that inflation is coming, that trade disputes will create a drag on economies and that interest rates are now on an upward trajectory. He is of course right on all points.
Interestingly, Roubini makes comment about how curbing immigration will slow growth because ageing populations will be unable to take up the slack. This is an irony that will be lost on same demographic that voted for populist movements to remove them.
While an irony, it’s also true. Immigration across nations has also been curbed, albeit temporarily, due to travel restrictions. Since these aspiring immigrants are forced to stay in their home nations, some may also suffer being jobless or earning less than what they hoped to. This slows down economic growth as the purchasing power of people also decreases. Moreover, investors are also more educated and aware about checking websites to research stocks to invest in.
Roubini also says that China must slow its growth to deal with overcapacity and excessive leverage. On the other part of the world, Europe will have to deal with its own current political dynamics and threats of more exits. The Brexit has, unfortunately, set this kind of model for other countries within the European Union. As has been shown in previous recessions, “the risk of illiquidity and fire sales/undershooting will become more severe and probably more importantly, that the backstop that central banks provided during the post-crisis years can no longer be counted on.”
In other words, Keynesian economics has just failed. Few governments were able to save anything from the last crash to pay for the next one.
William White4 is a former deputy governor of the Bank of Canada and former head of the Monetary and Economic Department of the Bank for International Settlements.
White, like Roubini, takes the view that the next recession might be even costlier than the last one, “not least because policymakers will face unprecedented economic and political constraints in responding to it.”
Nations across the globe have incurred so much more debt from the World Bank and other global banking and lending institutions. It’s no longer a battle of politics from one nation to another. But, a united fight of politicians to save their respective countries from a pandemic that’s wreaking more havoc than one could’ve ever imagined.
White focusses more on recent monetary policies that have seen a continuous increase in the ratio of non-financial debt to global GDP. He quite rightly points out that debt has piled up worldwide, with the most significant increases found in emerging-market private sectors.
“The recovery in emerging-market economies was supposed to be part of the post-crisis solution. Now, these economies are part of the problem. The fact that much of this dollar-denominated debt has been issued by non-U.S. residents means that another costly currency- mismatch crisis could be in store.”
Again, over-inflated assets such a stocks and property feature in the critique of these economic experts and all are looking not to be caught out in the “we didn’t see it coming” camp like last time. There is now talk of “covenant-lite” loans – the loans lacking many basic protections for the lender that created the environment for excessive risk-taking. This was how it was in 2008 – lending to high-risk demographics.
Richard Kozul-Wright, Director of the Division on Globalization and Development Strategies at the United Nations Conference on Trade and Development, takes a slightly different angle on the coming crisis. But in the end, it all amounts to the same thing. He says an under-regulated, or more importantly and unregulated “shadow banking” system has grown into a $160 trillion business. That is twice the size of the global economy.
“Thanks to the trillions of dollars of liquidity that major central banks have pumped into the global economy over the past decade, asset markets have rebounded, company mergers have gone into overdrive, and stock buybacks have become a benchmark of managerial acumen. By contrast, the real economy has spluttered along through ephemeral bouts of optimism and intermittent talk of downside risks. And, while policymakers tell themselves that high stock prices and exports will boost average incomes, the fact is that most of the gains have already been captured by those at the very top of the pyramid.”
Andrei Shleifer, the well-known Professor of Economics at Harvard University says that none of the lessons learned from the crisis of 2008 has been learned, irrespective of what various governments have said they have done. Interestingly, what Shleifer says more than anything was that the last crash was indeed predictable and therefore so should the next one. He, of course, comes to the same conclusions, there will be a crash, but for different reasons.
My point is much simpler. I predicted the 2008 crash and moved all money away from stocks (check out automated trading system (bitcoin pro)) and invested some of it in precious metals. Many people have started to invest their stimulus package into cryptocurrency which seems to be thriving at the moment as noted by Coinformant. At the time, my worry was that growth was being fuelled by debt, not by production or rapidly rising wages (of which neither was actually happening) being recycled back into the economy. I thought that the market was built on bluster and overconfidence. It was as it turned out, a bank-led confidence trick. They bet bigger than ever before and gambled that the bailouts would come – and they were right.
In 2018, global debt has risen to an eye-watering $250 trillion. Growing from just over $140 trillion in 2008 – this number is now more than 300 percent of 2018’s expected annual global output of $87 trillion. Again, increased production and rising wages have not featured as the primary driver of growth, but debt has.
Kozul-Wright rightly mentions that “emerging markets’ share of the global debt stock rose from 7% in 2007 to 26% in 2017, and credit to non-financial corporations in these countries increased from 56% of GDP in 2008 to 105% in 2017.” He also rightly mentions that these economies are much less likely to be able to cope with any downturn.
Nomi Prins, the Ex MD at Goldman Sachs, now a journalist who writes about Wall Street and the American economy, comes up with a similar but more focussed reason for the spark of the next crisis. She thinks the four-pillars of debt is on the verge of collapse.
Household consumer debt has hit all-time highs. So has credit card debt and student debt (now the second highest debt held in the U.S.) and finally auto debt. Interestingly, auto debt in the U.S. has not just reached a new peak, delinquencies have now overtaken that of 2008 peak as well. This is much the same in the UK. (see UK stock brokers list)
“Our economy rests upon four crumbling pillars of debt. If one of these collapses, the entire superstructure may not be far behind,” warns Prins.5
And so it appears that most economic pundits are going with 2020 for the global crash to return on all of the aforementioned. And they are all valid reasons.
My view is that the next global crisis has already started but that recessions begin where we are not looking and by the time we notice, it’s too late. We also like to tag an event to downturns like the false assumption that Lehman’s was the epicentre of the worst economic crash for 100 years. The reality is that Lehman’s was just a political scapegoat for the under-regulated neoliberal markets of the day that over-extended itself. It was all smoke and mirrors.
What happened then will happen again, as regulation has not fixed the underlying problems, only this time the responses to it will be muted out of a lack of available resources and that is, of course, a worry.
There is a bigger worry, though. The result of new bailouts will this time be utterly intolerable, especially in countries with resurgent populist movements and their near-insolvent governments. And this time, as a direct result of 2008, there are many to choose from. The fallout could be as game changing this time, as it was last time.
2020: Global Financial Casino Did Not Collapse After All
Two years later we get to see how the predictions fared. Nobody could have predicted the pandemic, however, not even a most significant reduction in global GDP did not make a dent in many of financial instruments and schemes that analysts were fearing in 2018. In 2020 we saw even more of it as the monetary response boosted value of stocks and virtually everyone joined the stock market. Many would cite the meme stocks and NFTs as not expected, but case in point in their story of financial system upcoming collapse. Well, now in 2021 we can conclude that pandemic did not wreck the financial system, while the money governments channelled to citizens ended up in meme stocks and online gambling as much as it was spent for life’s necessities. In the US new generations flushed meme stocks with money via Robinhood app chasing the hedge funds away. In Finland people stuck at home contributed to massive rise in online gambling. One important fact that was not mentioned by the researchers in the article was prospects of social unrest. as Corona pandemic still rages, societies are getting fractured and this is one important source of instability we have to look into more deeply in the future.
Final Word
Take your pick from the many triggers that could be blamed. But, whatever the reason, it’s safe to say that predictions for a global recession in 2020 have, in fact, come true. Different countries spread across all the continents have their own triggers for each of their respective economic recession. Threatened, if not real trade wars, geopolitical tensions, imploding consumer or corporate debt, shock elections, readjusting asset prices, Brexit, a destabilised EU, rising interest rates, inflation. The expected 2020 crash already has a foot in the door because the experts are already warning it will be so – confidence is rapidly waning. By summer next year, the global markets will have an undeniable new trajectory. All economists can hope for is that markets will, hopefully, start to prosper again and improve.
About the Author
Graham Vanbergen’s business career culminated in a Board position in one of Britain’s largest property portfolio’s, owned by one of the biggest financial institutions in the world. Today he is the founder and contributing editor of TruePublica.org.uk.
References
1 . Stubbly, P (2018), “Next Global Financial Crisis Will Strike In 2020, Warns Investment Bank Jpmorgan,” The Independent, https://www.independent.co.uk/news/business/news/next-financial-crisis-2020-recession-world-markets-jpmorgan-a8540341.html.
2. Mauldin, J (2018), “The 2020s Might Be The Worst Decade In U.S. History,” Forbes, https://www.forbes.com/sites/johnmauldin/2018/05/24/the-2020s-might-be-the-worst-decade-in-u-s-history/#1fd316e448d3.
3. Roubini, N (2018), “The Makings of a 2020 Recession and Financial Crisis,” Project Syndicate, https://www.project-syndicate.org/commentary/financial-crisis-in-2020-worse-than-2008-by-nouriel-roubini-and-brunello-rosa-2018-09.
4. White, W (2018), “Bad Moon Rising,” Project Syndicate, https://www.project-syndicate.org/commentary/global-economy-weak-fundamentals-by-william-white-2018-10
5. Prins, N (2018), “4 Pillars of Debt in Danger of Collapse,” Daily Reckoning, https://dailyreckoning.com/pillars-debt-danger-of-collapse/
