Odds of a Financial Crisis Remain High
The odds of the next financial crisis happening in the near future remain high, but this time don’t expect the U.S. to be the epicenter of the issues that set it off. It could be a problem brewing outside of the country that triggers our next financial crisis.
Never forget that the financial world is significantly interconnected. For example, a banking problem in Europe will become a problem for the U.S. financial system. So, you can’t just look at one country and its financial system and say everything is fine.
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Major Economic Hubs Suffering
As it stands, the U.S. economy and our country’s financial system are in decent shape. The economic data show that growth rates are intact, with a worst-case scenario of a soft landing at the moment.
Earlier in 2023, there were hiccups around the regional banks, but that situation was gotten under control very quickly. So, there’s not much to worry about there.
Unfortunately, the same can’t be said about every country within the global economy.
For instance, consider Canada: there are some serious issues brewing. The country’s housing market is stalled, with banks increasing their amounts of bad debt. On top of this, the overall Canadian economy is slowing down, and the Bank of Canada is cutting rates to prevent further deterioration.
In Europe, there’s anemic growth across the board, except for few countries. However, the major hubs in the regions, like the U.K., and Germany, are seeing anemic growth. It’s hard to imagine the smaller countries weathering this particular storm well.
The European Central Bank and Bank of England have started cutting interest rates, and the banks on the continent aren’t in the best shape either.
Moving east: the Chinese economy has been facing severe headwinds for some time now. The People’s Bank of China and the Chinese government are doing everything they can to revive the country’s economy. There’s deflation, a housing market crisis, banking issues, and much more.
Going further east: in Japan, the stagnation continues, with the Japanese yen facing severe depreciation.
When it comes to emerging markets like Brazil and India, there isn’t a big catalyst for growth. And, with major economies starting to slow, it’s hard to picture them really excelling. In fact, with major economies slowing, the financial systems of these emerging markets could be stressed, too.
What Will Happen if the Next Financial Crisis Hits?
Dear reader, the risk of our next financial crisis is brewing. This time around, it may start somewhere other than in in the U.S., but it will become a problem for U.S. banks and the Federal Reserve very quickly. Beware.
If a financial crisis does become a reality, don’t forget that valuations become questionable. In times of panic, investors don’t care about much else other than getting out; they want to sell in order to collect cash. This is the kind of situation where you see great stocks selling for an immense discount.
There’s one more thing I want my readers to think about: the U.S. dollar remains the primary mode for trade in the global economy. This means that a significant amount of debt is issued in U.S. dollar terms, commodities are priced in the dollar, central banks hold a lot of dollars, etc. I am watching the currency carefully.
Why?
Well, if there’s even a whiff of the next financial crisis beginning, the U.S. dollar would spike higher. The reason behind this is very simple: a financial crisis means one must seek safety. The dollar could provide that as things get worse. Plus, wouldn’t you want to have dollars at hand if you have to issue dollar-denominated debt?
