Is Another Financial Crisis Just Around the Corner?

Originally published by Global Market Perspective on October 2018 Read the original article.

The 2007-2009 financial crisis brought the world its biggest dose of deflation since 1929-1932.

And now, some 10 years later, there are reasons to worry that another one may be just around the corner.

The October 2018 issue of Elliott Wave International’s Global Market Perspective showed this chart and said:

Many economists claim that investors are smarter today, that the 2008 financial crisis raised the world’s collective financial IQ and will prevent a replay of past mistakes. But intelligence isn’t the issue; social psychology is the issue, and a casual stroll through today’s financial marketplace exposes the fallacy of believing that investors are wise to what got them into trouble 10 years ago. Indeed, almost all of the same financial products that were left for dead during the last crisis have gotten back on their feet and started walking again. Bloomberg makes that case: “These days money managers are piling into leveraged loans … and securities backed by consumer debt rather than mortgages. Even collateralized-debt obligations, blamed by many for triggering the 2008 financial and economic meltdown, are making a comeback.” (Bloomberg, 9/17/18)

It’s not merely a comeback, however. Several of these bygone products are now more plentiful today than they were a decade ago. New issuance of collateralized loan obligations (CLOs) will break another record this year, as will asset-backed securities (ABS) comprised of sub-prime auto loans. The graphs above show that both products have already exceeded their pre-crisis peaks from 2006 and 2007.

Yet, there’s even more evidence that the global financial system is vulnerable to another earthquake.

Indeed, EWI’s analysis suggests that the next financial crisis may be more severe than the one that occurred from 2007 to 2009, and even rival the deflationary depression of 1929-1932.

Read the free report, “What You Need to Know NOW About Protecting Yourself from Deflation.”

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