This article is a veritable key to our upcoming discussions about finding solutions if a financial crisis is coming. During the next financial crisis, the difference between thriving and failing for bankruptcy will boil down to understanding the origin of the tragedy. That’s what we will discuss right now regarding the economic downturn. Soon, we will know what to expect once the world economy collapses and we will live through a global financial crisis. Therefore, we are going to find out which aspects will possibly lead us to a new global economic downturn.
For some individuals and businesses, financial crises create opportunities. If you have the ability to modify your viewpoint, and consider change to be positive, rather than a threat, all sorts of possibilities will begin to appear, so some companies already saw during the great depression in United States.
Then you’ll discover favorable opportunities in every new change you encounter. We will discuss many of them in a series of articles. In fact, change itself becomes your friend, rather than your enemy.
In general, several well-known economists say that the next global financial crisis will take place in a short amount of time. This idea links with the notion that we have a crisis about every ten years, which is why they’re viewing the next one as occurring from 2018 to 2020. There’s basically a general consensus that a new financial and economic crisis will strike. However, there’s less of consensus about the specific causes of the future crisis. Regardless the cause of a world economy collapse, interest rates, federal reserve and all banking system will have to suffer. All monetary policy will change, central banks will be overwhelmed heading to a possible trade war.
And don`t you think it’s incredibly important for us to see where the bullet might come from? It might be different than it was during previous crises. And if there are different causes, solutions that worked during previous crises may be incorrect during the next crisis.
The first sign that there will be a crisis is when everyone gets hypnotized to invest in assets that they don’t have much knowledge about. I call it the herding effect: people tend to fall in line like sheep and take a risk without having all information. We will see that in 1630, people invested in tulip bulbs. And when their price dropped overnight, investors came to ruin.
Just like the crisis of the tulip bulbs, many ordinary people turned into stock-market speculators almost overnight when the Great Depression started in 1929. At that time, the values of investors’ actions grew uncontrollably. When you want to make an investment, moreover a great recession times, you should take a calculated risk, no matter if the crisis just occurred in the United States. Once it spreads outside U.S., no one will be untouched, all central banks will suffer, all interest rates will be affected all overt the world and the federal reserve of each country will be overwhelmed.
Anyone who was an investor on Wall Street in the U.S. at that time did not understand what would occur. Instead, they believed that they would thrive in a bubble, but they could not understand its mechanism. In fact, they did not even understand what was happening when Wall Street’s stock prices started to fall, and the destructive crisis occurred.
To make the best decisions possible, we are going to talk about some interesting teachings in our article, which is also good news during the next world economy crisis! So in 1929, it was the stock market bubble. And in 2008, it was the real estate bubble.
I’m not sure you understand: in the previous crises, we had ONE bubble. Now we are threatened by more bubbles at the same time: the derivatives bubble, the stock bubble, the real estate bubble, a bank-trust bubble, and (maybe) a crypto currency bubble. All of these bubbles will burst at the same time, every monetary policy and interest rates of every central bank will burst at the same time.
The Importance of Derivatives
Now I see that the world invests in derivatives, and more recently, in Bitcoin and other crypto currencies. Speaking of derivatives, in short, these are financial contracts by which one party (the buyer) agrees with another party (the seller) to purchase the asset on a specific date, and at a specific price, taking a risk that it could decrease.
If the prices are lower than estimated, the buyer loses, and if the prices are higher than estimated, the seller loses. Do you understand where the danger and the risk comes from? Derivatives are a win-lose game. Some think of them as being bets. But in order to win, many people must lose (not just one person). Who do you think will lose? As always, the losers will be uninformed, anonymous investors, who are mesmerized by a phenomenon they do not understand. Some economists say derivative products are tools for transferring wealth from a non-informed unknown investor to the informed investors hands on the market.
The most notorious derivatives are collateralize debt obligations (or CDOs). We don`t discuss them, because they are very specialized terms, but remember: CDOs were one of the causes of the 2008 financial crisis.
Now, we have a derivative bubble (among other bubbles). It seems that some people haven’t learned anything from the last economy crisis. That’s why the next article will reveal the secret mechanisms of the economy crisis, in order to better prepare.
As far as crypto currencies are concerned, I do not pronounce myself on it, because there are pro and cons. And they produce concerns that aren’t just economic, but also political or social. Some say that Bitcoin will reach $300,000 or $500,000. (At least they’re saying it will, not just hoping that it will.) However, others are aware of this new bubble, which shows two things that I have observed occurring before all financial and economy crises:
Information reaches the masses:
They are mesmerized by the possibility of fabulous, effortless, overnight gains. This exact scenario occurred before the 1929 and 2008 crises. And in all likelihood (which increases with every day that passes), it will reoccur within a few months.
The lack of reliable investment advice on crypto currencies could also cause many investors to “get hurt.” See all the arguments for this situation: http://uk.businessinsider.com/bitcoin-could-trigger-financial-crisis-2017-12
I want you to clearly understand: I am not just saying that many investors may win or get hurt. I am not a professional investor. Rather, I am a business consultant with experience in marketing and PR. Based on my experience, I can say that many may panic after they hear rumors uncontrollably circulating — in the absence of correct information. Therefore, many people might lose.
The history of the crises tell us that when a large group of people massively loses, the crisis is near. We are discussing this subject in our next special article.
Can the next financial crisis be controlled or not?
The idea is that an uncontrolled bubble, to which the uninformed “neighbor” participates, although he doesn’t know the basics, is a clear sign of upcoming crisis. And I’m afraid to think about what some say – but I’m afraid and it’s true, seeing a copy-paste of the crisis:
”The first sign is an asset bubble. In 2008, it was housing prices. In 2001, it was high-tech stock market prices. In 1929, it was the stock market. It’s usually accompanied by a feeling that ‘everyone’ is getting rich beyond their wildest dreams by investing in this asset class.”
As for the growth (again) of real estate prices (just like before 2008), an interesting analysis draws our attention that:
”Real estate prices have risen globally with investors purchasing rental income streams to diversify away from low income financial assets. Markets as disparate as the US, Canada, UK, Germany, France, Scandinavia, Australia, New Zealand, China, India and many other emerging countries have become overheated”
If we arrived at this macroeconomic and international level, we note that a study by the International Monetary Fund (IMF) shows that China’s huge debt could create a new financial crisis, since loans have reached unsustainable levels and interest rates have risen. Even though it’s questionable, this report from international experience suggests a dangerous trajectory about the loans made by China—with an increased risk of the world market falling, or a sharp slowdown in economy growth.
As I pointed out, the 2008 economy crisis had a strong real estate component. Now, everyone is playing roulette on one or more parallel bubbles, as I have just shown above. It is possible that all these more bubbles could burst at once, which will create an unprecedented situation in the U.S. and outside the U. S.! Then at that point, houses, derivatives, and even money will suddenly be worthless affecting each and every bank and each country’s federal reserve. Would you be surprised to pay $2,000 for a loaf of bread? If so, pay great attention to what I`m going to tell you in our upcoming articles.
Unfortunately, when things get out of control, only an ice-cold shower will wake us up to the cold, hard reality of life.
So are we…Doomed to Repeat History?
Many voices have warned us to prepare for something far worse than the 2008 economy crisis. One of these voices is Jim Rogers, a businessperson and investor from the U.S., who warned about the real-estate bubble and consumer-debt bubble in 2002. Together, they caused the financial 2008 economy crisis, although no one believed him. Here’s a paraphrased version of his new warning:
You’re going to see governments fail. This time around, you’re going to see countries fail. You’re going to see institutions that have been around for a long time gone. For instance, Lehman Brothers was around over 150 years, and now they’re just a memory. You’re going to see a lot of more of that during the next crisis—whether it’s museums, hospitals, universities, banks.
As I said, a study by the International Monetary Fund (IMF) shows that China’s huge debt could create a new financial crisis, since loans have reached unsustainable levels for central banks. The conditions seems to originate in China, but the situation in the U.S. isn’t any better:
A risky debt of $3 trillion can impact the U.S. financial markets, central banks and federal reserve, whether or not the federal reserve or the banks want to admit it. In fact, they show the following at a global level: there is an explosion of the U.S. government debt, which is not sustainable at the current level of economic growth. It is due to political regulations, and the refusal of politicians (pressed by their voters) to cut costs. This impact leads to increased government spending (more free stuff), but also to more debt to banks.
Peter Toogood, investment director at City Financial, also sounds a strong alarm by saying that growing debt levels—fueled by extraordinary monetary policies from the world’s central banks—could mean that the economy is heading towards a financial crisis.
In general, many economists and financial analysts say that the next crisis will take place soon, and might not hit the U.S. first, it might spread fast all over the world, but no one can say for sure. There is still a general consensus among these economists and analysts, who are predicting the same thing, which makes me wonder: aren’t a lot of voices singing the same tune, like they’re being led by a single conductor?
If we can’t get people to see the outcome, is this scenario really desired?
If we are diligent as we head toward a crisis, we should prepare ourselves. But we shouldn’t wait until the crisis is already in motion. Now I`m going tell you a story that has every chance to be true:
It is said that in front of a huge business center made of concrete and glass, a shoeshine man found a steady clientele. Busy business people, employees, and guests, all needed final touches before entering the building. And some customer were just passing by and decided to get their shoes polished.
Our shoeshine man worked with all his heart. He used plenty of excellent shoe polish, and he spoke a few kind words to customers. His shoes shined like jewels, and he was pleased with little money for his work.
One day, two of the clients entered the building, and came to our shoeshine man. You know the type: they were wearing black suits, white shirts, and glasses. They looked like successful people.
While polishing one man’s shoes, he whispered to the shoeshine man: “My friend, I see you’re working well and asking for little. Be careful, there will be hard times coming soon. The world will have no more money, and you are going to have fewer clients. So you might go bankrupt. Before these hard times come, see what you can do to make sure you get some more money, because it’s not clear how long theses dark days will last.”
Our shoeshine man grew paranoid. He became more expeditious in his daily work, and even worked in a botched manner, in order to have enough time for more customers. He bought cheaper shoe polish, watered it down, and increased his prices. But the customers were getting less and less satisfied, and the shoeshine man`s revenues were dramatically dropping.
One day, the shoeshine man looked into his wallet, and he had very little money put aside. Then he thought, “How happy would I have been if those people had told me sooner that there would be a crisis, and there would be no more money?”
It’s enough to tell people that there will be a crisis, and we will trigger it: capital is no longer moving and banks are starting to feel this sooner than everyone else. So production falls, and jobs are gone. We no longer pay out bills because of incomplete incomes, and banks fail or become black holes. And the wave spreads to foreign branches, where the effect is similar and of course to the central bank as well. Starting with the great powers of the world, China, the U.S. and to the little ones, all countries will have to suffer and each central bank cannot sustain the crash.
And all because “we were told” that there would be a crisis, so we acted on it.
 The whole arguments can be found here: https://www.thebalance.com/u-s-economic-crisis-330566