Another financial crisis is coming, and thanks to Donald Trump we may not be able to solve it
David Brown says current conditions resemble those of 2007-08, but a wave of populist nationalism spearheaded by the US president is undermining global institutions that ended the Great Recession
Before the 2008 crash hit, I railed at clients, colleagues and management about the impending risks. The global financial system was a powder keg waiting to explode. The world was awash with debt, spreads and volatility were way too low and there was a disturbing mismatch between risk and return.
If the world needed proof that greed was indeed bad and excessive exuberance was the greatest threat to global stability, then we should have learned our lessons the hard way after 2008.
Sure, global regulators have papered over some of the cracks in the banking system, forcing banks to bolster capital reserve ratios and toughen rules and regulations on risk-taking. But it seems more akin to re-arranging deckchairs on a sinking ship. The underlying dangers have not been tackled and, if anything, the risks have proliferated.
What made the difference was that there were enough multilateral-thinking policymakers willing to turn the tide. Preserving international order was the prime directive over national self-interest at the time. They could afford to turn on the super-stimulus and they did so in a very determined way.
A decade on and the world seems to be running out of options. Global interest rates are close to rock bottom, quantitative easing has run out of steam and government priorities have returned to budget-cutting and austerity.
The good news is that global liquidity has been given a mighty push in the past 10 years, providing a decent impetus to global growth, but the big question is how long it will last.
The trouble is that there is very little we can do about it. The rise of political populism and the switch away from benevolent internationalism to narrow, national self-interest is growing by the day.
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The next time the crisis hits, the supranational agencies will lack the punch to make a difference. And whether it is a trade war, debt crisis, global recession or financial market meltdown, the former stalwarts of concerted multilateral intervention are no longer on the scene.
The architects of the 2008 bailout are long gone. The worry is the new generation of global policymakers lack the wherewithal, remedies and the conviction next time around.
In 2008, the impact of countries working together was greater than the sum of the parts. Only full-scale, concerted global intervention can deal with the next crisis. I doubt whether it can be salvaged.
David Brown is chief executive of New View Economics