Advertisement
Banking & finance
Opinion
Anthony Rowley
Anthony Rowley

Macroscope | From IMF to World Bank, the financial warnings piling up should jolt us out of our complacency

  • The belief that markets will recover as soon as inflation is curbed and interest rates have peaked is sheer ignorance
  • Experts warn that a systemic crisis is looming, affecting everything from banks and insurers to the housing and cryptocurrency markets

Reading Time:3 minutes
Why you can trust SCMP
7
US Treasury Secretary Janet Yellen (second from right) speaks during a meeting on the fourth day of the IMF and World Bank annual meetings at the International Monetary Fund headquarters in Washington on October 13. Photo: Getty Images / AFP
Anthony Rowley
JPMorgan Chase CEO Jamie Dimon put the wind up markets with his recent warning that stocks could fall a further 20 per cent as recession threatens the US economy. Yet that is nothing compared to the wider threat of a systemic financial crisis or crises that has since come to light.
As was revealed during the unusually sombre annual meetings of the International Monetary Fund and World Bank last week, risks go well beyond simply a further drop in equity, bond and other asset prices. They extend to banking systems, all manner of other financial institutions, housing markets and more.

The implication is that markets and the global economy may need to brace themselves not just for a hard but a crash landing, and that the already stretched “emergency services” – government budgets and central bank resources – will need to be on hand again to attempt a rescue operation.

Advertisement
This is not the conventional market “wisdom”, which holds that once the US Federal Reserve and other central banks signal that inflation is under control and interest rates have peaked, stocks will return to an upwards trajectory, even if they do suffer a “Dimon dive” first.

This is a dangerous complacency born of the fact that many observers seem ignorant of how economies and markets act and interact, especially in a crisis, as the IMF’s semi-annual Global Financial Stability Report released just a few days ago has joltingly reminded us.

Advertisement

Financial vulnerabilities, it said, “are elevated for governments, many with mounting debt, as well as nonbank financial institutions such as insurers, pension funds, hedge funds and mutual funds. Rising rates have added to stress for entities with stretched balance sheets”.

Advertisement
Select Voice
Choose your listening speed
Get through articles 2x faster
1.25x
250 WPM
Slow
Average
Fast
1.25x