The World’s Next Credit Crunch Could Make 2008 Look Like A Hiccup

 

 

 

 

” We are certainly living in strange times. An unprecedented monetary experiment is coming to a staggered end and no one knows the potential repercussions – a plague of frogs cannot be entirely ruled out.

  For the time being, the markets remain sanguine, expecting, for example, a gentle increase in the Bank of England’s main interest rate to just 1.5pc by the end of the decade. And, who knows, maybe the markets are right.

  But maybe it’s too quiet. Last week, Ray Dalio, the founder of the $165bn (£110bn) hedge fund Bridgewater Associates, wrote a widely-circulated note warning his clients that the US Federal Reserve risked setting off a 1937-style crash when it starts raising interest rates again.

  Then, as now, the central bank had spent years printing money in order to help the American economy recover from the 1929 crash. But the side effect was a stock market bubble, which promptly burst when the Fed prematurely increased rates. Mr Dalio is worried about a repeat performance: “We don’t know – nor does the Fed – exactly how much tightening will knock over the apple cart.”

  It’s true that the policy and regulatory response to the last crisis often sows the seeds for the next. It is not hard to map out a sequence of events in which that proves to be the case again. If it were, a US stock market crash might be the least of our problems.”

 

Read more at the Telegraph

 

 

 

 

 

 

 

 

 

 

 

 

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