5 Triggers of the next financial crisis

22 марта 2017, 15:32
Aleksei Kotlovanov

Trump’s promises about tax cut and cancelling Obamacare caused optimism on the market and shares climbed. However due to history investors are prone to ignore the risks on specific markets, which may cause the system crash. 

Here are 5 problems which can become a trigger of the next financial crisis.

Real estate bubble.

The big cities in USA with the best economic indicators had a fast growth of real estate prices because of low mortgage rate and credits for upper-middle class and money-bags. Now Fed funds rate growth can cause the growth of credit rates and monthly payment higher than approachable for potential house-owners. Also it will influence the rental prices in bi cities. 

Students’ credits.

The volume of students’ loans is higher than 1,4 trillion USD and more than 40% of the loaners caused or will cause the credit default. In the end there will be 2 options for  Federal Government: to pay out hundreds of billions USD or let the banks and bondholders absorb great losses. This is one of the unpopular scenarios, or as we have seen on the Lehman Brothers’ example in 2008, one of the opportunities for the US Government to face the financial instability. Trump’s administration will face a poor choice. 

European Banks

European banks are now facing slow economic growth and ultra-low interest rates which cause difficulties with bad loan write off. Around 17% of Italian bank loans have already exceeded time limits. Deutsche Bank (NYSE: Deutsche Bank [DB]) have recently been fined by US Department of Justice (USDOJ). The bank forced the bondholders to exchange bonds for shares in the DB and absorb huge losses. The recurrence of the story may cause panic in Europe. In Italy they already proposed to common bank depositors to buy bonds circuit-wise as Americans invested in certificates of deposit. The forces exchanges for shares in banks may cause big saving losses and economic recession with high consequences for other European and American Banks. 


Chinese Government sponsored noneffective state ventures. The export companies used available credits and supported the growth of economics. Now the state deficit is 15% GDP, and total national and individual debt is 250% GDP. China was printing money what caused a scary growth of bonds, shares, materials and real estate. Investors are leaving China, what reduces the RMB cost in USD. If these bubbles burst and RMB falls down, Asian countries and other developing economics which depend on export to China will probably become unable to service their USD debts.

Trump’s promises and political discord. 

Trump’s Economic program may encourage the global growth and ease the regulation on the individual markets. However there are difficulties - he will need to unite the Republicans to force the law on public health and rearrange the corporate tax. His defeat at these lines may easily depress the shares prices and corporate investments, cause one more economic recession and panic among customers. Rough democrats and rightwing are going to force American president keep the ideological simplicity and prevail at the risk of global economical crisis. 

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