Nouriel Roubini / ZeroHedge
Although the global economy has been undergoing a sustained period of synchronized growth, it will inevitably lose steam as unsustainable fiscal policies in the US start to phase out. Come 2020, the stage will be set for another downturn – and, unlike in 2008, governments will lack the policy tools to manage it.
As we mark the decennial of the collapse of Lehman Brothers, there are still ongoing debates about the causes and consequences of the financial crisis, and whether the lessons needed to prepare for the next one have been absorbed. But looking ahead, the more relevant question is what actually will trigger the next global recession and crisis, and when.
The current global expansion will likely continue into next year, given that the US is running large fiscal deficits, China is pursuing loose fiscal and credit policies, and Europe remains on a recovery path. But by 2020, the conditions will be ripe for a financial crisis, followed by a global recession.
There are 10 reasons for this.
Fans of HBO’s hit series, Game of Thrones, know well the motto of House Stark: “Winter is Coming.” This motto warns of impending doom, whether brought on by the Starks themselves, devastating multi-year, cold weather, or something far more ominous north of the Wall.
At least since Soviet economist Nikolai Kondratieff wrote The Major Economic Cycles in 1925, recessions have been associated with winter weather. Although Kondratieff’s theories contained as much fantasy as Game of Thrones, using seasons as an analogy for the stages of a business cycle is intuitive. If spring represents recovery, and summer the peak of economic growth, then the U.S. economy may well be in autumn. All should be as wary as the subjects of Westeros (the realm of focus in Game of Thrones).
Few mainstream economists currently foresee a recession. They cite “strong” (a new-found, favorite term in Federal Open Market Committee minutes) economic statistics, a “healthy” stock market (despite gains highly concentrated in the so-called “FANG” stocks), and few warning signs among the “leading indicators.” But the same exact sentiment existed before the last recession. Most infamously, then-Federal Reserve Chairman Ben Bernanke stated in January 2008 – exactly one month after the recession technically began: “the Federal Reserve is not currently forecasting a recession.”