Another financial crisis is not too far
WHAT IF THE TRIGGER FOR THE NEXT ECONOMIC CRISIS IS SOCIAL, NOT ECONOMIC? INEQUALITY IS GROWING, PRACTICALLY EVERYWHERE, TRIGGERING A SURGE IN ECONOMIC NATIONALISM
unforeseen advances in technology, stoking large scale redundancy in jobs. Each has her own favourite red flag. But then, ten years after a crisis that brought the world to its knees, it is not a bad thing to be watching over your shoulder.
What if the trigger is social, not economic? Inequality is growing, practically everywhere, triggering a surge in economic nationalism. This trend will only get stronger at the first hint of a slowdown, leading to a self-perpetuating vicious cycle that is every bit as potent as any economic trigger. Beware.
biggest worry, whatever the cause of the next crisis turns out to be, is that there are far fewer arrows in the quiver to fight it this time. In 2008, central banks could drastically pare down interest rates and throw trillions of dollars of quantitative easing (QE) to reflate the global economy. Now, interest rates are already too low and country balance sheets bloated, robbing central banks of the monetary or fiscal space required to combat recession. It is similar to a situation of soldiers being too tired from the previous battle to engage in another.
As we remember 2008, then, and examine data on reduced leverage or greater central bank vigilance, we should not be deluded into feeling, even for a moment, that we are safe from the next tidal wave. The best we can hope for is that it is less severe, so we can take it in our stride, without having our lives turned upside down. But, prepare we must, as winter is coming. It has been a long summer and may extend a while still, but the cold waits.
Udayan Mukherjee is Consulting Editor, CNBC TV18. His first novel, Dark Circles, is being published by Bloomsbury India this November. The views expressed are personal