Start preparing for the next financial crisis now, because the world is ready for it. That was the warning from Dawie Roodt, chief economist at the Efficient Group, during a recent presentation. He said with growing debt burdens the current global monetary path was not just ineffective but increasingly dangerous. “The wheels are coming off. Governments have gotten bigger and bigger and need more money – and with it the debt burdens on economies have kept growing. This debt, this tax burden, is the highest it has ever been,” he said. “Still it is not enough to feed the monster, so politicians started borrowing money leading to one crisis after the other. Today outstanding government debt globally is the highest it has ever been.” Roodt said just as concerning was the role of central banks that were doing extremely “funny things”. “They cut interest rates to below zero. There are some central banks in the world that are even asking minus interest rates. There are few economists who believe interest rates can fall below zero.” He said central banks coining terms such as quantitative easing had seen them making money out of nothing to give to politicians to spend. “The US has over the past ten years created $4 trillion out of nothing. It is called fiat money,” he said. “Fiat money literally means let there be money and there is money. All of this money has been pumped into the financial markets resulting in very low yields on savings deposits.” This has seen asset managers looking for yields elsewhere and taking more risk, pushing up asset prices globally. “And this is where we are at present globally. Asset prices are very dearly priced and equity prices are very high. I know the world is ready for the next financial crisis,” he said. “I just don’t know when, but I know it will happen.” Roodt said with debt ratios being allowed to increase, what was initially a developed world problem was now a global concern. The appetite for risk was just as concerning, he said. According to Roodt one saving grace at this point is the world economy still growing. “Some economies are doing particularly well, like the Americans,” he said. “This is due to Trump cutting taxes and boosting the US economy, with unemployment at record lows, but there are many economies that are struggling such as the European Union which is growing at a low rate.” He said the Chinese economy was also slowing down significantly and could be expected to only see growth at a more realistic level of around 4 or 5% at most in the coming years. Roodt said if there was one economy, however, he had to pick as the start of the future it would be India. “That economy is cooking and if they can sort out their politics they are going to do extremely well.”
CAPTION
One saving grace at this point is that the world economy is still growing. – Dawie Roodt
