Read the first part of this series here.
The elements of a new international financial crisis are in place. Although we do not know when it will break out, it is unavoidable, and its impact on world economy will be as significant as the 1880s-90s, 1930s-40s and more recent 2008-09 meltdowns. Worse, far fewer of the global capacities of the latter period – rapid lowering of interest rates, printing of money to buy up state debt (‘Quantitative Easing’), and sufficient fiscal space for bailouts – are available to global crisis managers. And most troubling, many more of the proto-fascistic political characteristics reminiscent of the 1930s are looming, especially in the new contextualisations of the Global South.
The contributing economic factors include:
- sharply increased private debts of corporations;
- speculative bubbles in financial asset prices: stock markets, debt security prices, and in some countries, the real estate sector (at the end of December 2018, a major stock market crash almost broke out in the United States and the contagion effect was immediate, an additional signal that a major crash will have as great a global impact as did 2008-09’s);
- the major banks remain extremely fragile, with share values falling in the United States and Europe since the second half of 2018;
- the US real estate market has become fragile again, overall global prices up by 50% since 2012, with lev- els in excess of those reached just before the crisis that began in 2005-2006;
- Quantitative Easing policies in Europe and their return in the US (as the Federal Reserveeases interest rates in mid-2019 under pressure from President Donald Trump, running for re-election) represent further factors that have the effect of pushing ‘risk on’ funding into South African securities, but at the expense of further rapid outflows when ‘risk off’ sentiments dominate.
Total Debt (Corporate, Household, Government) in the World Economy, 2012-19
Source: Institute of International Finance 2019
Economic growth in the most industrialized “old” countries remains weak. Especially in Europe after low growth in 2017, the year 2018 ended with stagnation and in the case of Germany,