When is the financial collapse coming

Economics was never meant to be used for forecasting, which is why whenever you ask economists about the next financial crisis, they open their financial history books. While others already started predicting the next financial crisis, we would like to define its historical nature and timeline.

We share the view that financial crises will happen in the future just as they have happened in the past, but we think that a like meltdown or worse is quite unlikely anytime soon. They just happen. Of course, seismologists know where the active zones are.

And medical specialists may well know the nature of the next virus type. The same holds for financial markets, as a look at the crises of the past 90 years shows see chart. The mother of all financial crises was the meltdown, followed by a relapse into recession in the late s.

Thereafter, nothing has come even close to those early traumatic experiences. The next 30 years or so witnessed further crises, but they were much smaller in scale. Still, at the time it felt like the world was about to end. Lesson 1: Even crises that turn out to be small by historical standards feel at the time like the end of the world. Shock spotting There seems to be a pattern to the frequency of crises. In the chart we counted a total of 27 spikes in the past 90 years, which makes the average interval between two crises about three years and four months.

Out of the 27 crises, more than half were minor crises and shocks. The firm said interest rate hikes could "cause havoc in a debt-heavy world," with financial crises likely particularly in emerging economies where growth won't be able to overcome higher financing costs. Sign up to start a free trial today. Skip Navigation. Key Points. In an out-of-consensus forecast, Deutsche Bank is warning of a potential crisis coming from inflation.

Most on Wall Street and at the Fed see inflation is a temporary problem that will ebb as special factors fade away. In this article. We all certainly hope not, but we should remember that such a war did already occur: most of the Korean War consisted of battles between the Chinese and American armies. If it happened again it would be a terrific crisis, needless to say, with perhaps a global financial panic thrown in.

Overall, we can say there is plenty of risk and uncertainty to provide the possibility of the next financial crisis. I suggest seven possibilities: 1. A Housing Collapse Again A particularly notable asset price inflation is, once again, that in the price of houses, which are the biggest investment most households have and are the mortgage collateral for the biggest loan market in the world.

Overpriced, leveraged real estate is a frequent culprit in financial crises. Maybe once again. An Electricity System Failure Imagine a failure, similar to our financial system macro-hack scenario, resulting from an attack maliciously carried out to bring down the national electricity system, or from a huge solar flare, bigger than the one that took down the electric system of Quebec in The Next Pandemic It feels like we have survived the Covid pandemic and the crisis is passing.

How soon could a new pandemic happen? A Major War By far the most important financial events of all are big wars. Nov 4, Nov 1, While it has hinted that an additional rate increase is likely in December, and that its policy rate could reach 1. In the years between the start of the Great Moderation in the mids and the financial crisis, advanced-economy central banks failed to give sufficient weight to financial stability.

Follow the latest news on the Federal Reserve on MarketWatch. The result was a financial disaster and a severe cyclical downturn. But they also went far beyond what was required, pulling out all the policy stops to support real economic activity. The economic and social cost of a financial crisis, especially with private and public leverage as high as it is today, would dwarf the cost of persistently overshooting the inflation target. Obviously, very high inflation rates must be avoided, because they, too, can become a source of financial instability; but if preventing a financial calamity requires a few years of high single-digit inflation, the price is well worth it.

I hope and expect that central banks—not least the Federal Reserve—are ready to respond appropriately if the U. This estimate strikes me as optimistic. If the sovereign default were to be protracted, the costs would probably be much higher.