Another global financial crisis is imminent, and here are four reasons why

Niall Ferguson says that, based on the similarity between present conditions and those before the 2008 Great Recession, there is reason to believe another global slowdown is on the way

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A specialist reacts to sharp losses on the floor of the New York Stock Exchange in October 2008, in the midst of the global financial crisis triggered by the bankruptcy of Lehman Brothers that September. Photo: AP

Published: 1:56pm, 20 Nov 2017Updated: 7:25pm, 20 Nov 2017

In June 2006, I observed that interest rate increases by the US Federal Reserve would sooner or later effect heavily indebted American households. In November 2006, I argued that the developed world might end up in the same mess as Japan since the 1990s, fending off deflation with monetary and fiscal expedients and stagnating.

Two months later, I found it “perfectly possible to imagine a liquidity crisis too big for the monetary authorities to handle alone ... Governments would need to step in.” By autumn 2007, I argued that we confronted “a more toxic cocktail than many investors still want to believe”, and the crisis would be global.

In December 2007, I predicted a “great dying” of financial institutions as a “man-made disaster – the subprime mortgage crisis – works its way through the global financial system”. On August 7, 2008, I anticipated a “global tempest” that would swiftly make the term “credit crunch” an absurd understatement.

There is a lot about the present reminiscent of pre-crisis days. In all but a handful of housing markets, inflation-adjusted home prices are above where they were on the eve of the crisis. US home prices plunged a quarter between 2006 and 2012. They have recovered and added some on top. New York condos are 19 per cent above their pre-crisis high. And real estate isn’t the best performer of 2017.

An employee of Quillsen estate agents changes the window display of available properties for sale in Dublin, Ireland, in January 2016. Ireland’s official house price index is at an eight-year high as of early November, with Dublin prices up 87 per cent since 2013. Photo: Bloomberg

Policymakers must change tack to avert the next financial crisis

On January 1, you would have done even better to invest in emerging market equities. Another winner for the year was the “Fang” tech companies: Facebook, Amazon, Netflix and Google shares are up between 30 per cent and 60 per cent. The best trade of all? Bitcoin, up by a factor of seven since the year began.