Is another global financial crisis on the horizon?
Monday, September 24, 2018 IST
NEW DELHI: Ten years after the fall of US-based investment bank Lehman Brothers and the subsequent global financial crisis, voices about another looming crisis are getting louder. Are we on the verge of one? No one knows for sure but here's a sample of what's bothering experts:
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TOO MUCH MONEY IN THE MARKETS
To promote recovery from the 2008 crisis, central banks around the world printed huge amounts of money. Much of that money --a staggering $290 trillion -- has found its way into the financial market which includes stocks, bonds and other financial assets.
With central banks keeping interest rates low, investors chasing high returns are putting money in poor quality investments, and that is a big risk.
HUGE DEBT OF DOLLARS
Emerging markets are forced to accumulate US dollars, the only global reserve currency. That increases dependence on the US monetary policy too. A lot of short-term funds that entered emerging economies offering higher returns can move out as interest rates in the US rise. This may lead to bursting of many asset bubbles created by easy money precipitating a crisis.
FRAGMENTED REGULATION AND COMPLEX INVESTMENTS
"The combination of a complex and constantly evolving financial system with a fragmented regulatory structure was at the core of the last crisis. These challenges remain, and could well lead to another crisis sooner than anyone would like," says Kathryn Judge, law professor at Columbia University.
OVERDUE MARKET CORRECTION
Most assets are expensive and there aren't many good new investments available. This means a market correction is due. A small event can lead to a big impact in such situations. Brexit or the US-China trade war may well prove to be that trigger.
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