by Victor Mozambigue
With bond yields rising on one side and the prices of gold rising on another, a global financial crisis has become a possibility. Experts are predicting a recession. However, you can clearly see that it is not just a recession, it is a depression, and the consequences of such a financial crisis will be felt globally. The western banks are already stressed with debt while the European banks must wait patiently for the political turmoil to settle. A global financial crisis is imminent and it is only a matter of time that it would be apparent. Here are the top 3 catalysts for a massive global financial mess.
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The end of Euro
Euro may end on a very bitter note. If one country leaves the union, others may follow. This is the reason Mario Draghi, head of the European Central Bank is so concerned about keeping the Eurozone together. If the Euro breaks, a banking crisis would be the first thing that the nations witness. The mortgages and debt of the countries will now be payable in currencies that are about 35-40% lesser in value as compared to the Euro. Governments that exit Euro must pay their foreign debts too. The chances of default are much higher. The European Central Bank has successfully delayed a crisis but may not be able to avoid it altogether. Once countries exit, systemic banks will be under severe pressure and financial problems will follow. France and Italy are already preparing for turmoil.
Growing Bond Yields Worldwide
Bond yields have been another catalyst of a global crisis. In the US, 10-year Treasury bond yields are currently 2.4%. They were 2.6% a short while ago and are expected to rise more in 2017. Many economies are yet to recover from the 2008 situation. The Bond Bubble could single handedly land many economies in hot water. The Italy-German Bund (a 10-year bond spread) has reached its 3-year peak. The France-Germany Bund is doing no better as it reaches an 18-month high. France’s political issues have been playing a major role in this performance. Investor confidence is low which is leading to a higher Bund spread. Add to it the rising gold prices worldwide and you find investors running towards safe havens to protect their investment.
China can unleash hell
The Chinese authority tries to portray a rosy picture of the economy which is growing at a steady rate. However, even by conservative estimates, China is under a massive debt burden. The government is trying to hold a good economic performance which may not last for too long. China has gone on a debt binge that will be difficult to maintain. Consider the fact that the US has blamed China for indulging in unfair trade practices and there could be trade sanctions that could hurt the Chinese economy. Chinese growth model is now exhausted.
It has become evident that a global financial crisis will be hitting us soon. 2017 will be the year of a dramatic political shift. The wave has started in the US and it will soon be felt in all the American, European, and Asian nations. The question is when?