A NEW GLOBAL CRISIS MIGHT STRIKE AS EARLY AS NEXT YEAR

HomeNewsA NEW GLOBAL CRISIS MIGHT STRIKE AS EARLY AS NEXT YEAR

This fall, the first symptoms were felt at the stock exchanges around the globe. Shares of the US technology companies lost 20% to 30% last fall. Once again, something has gone wrong in the US economy. This happens just like in Hollywood films: at first, everything is calm, then the life of the main protagonist, a good fellow, is shred into pieces, however he pulls through and proceeds to save his family and the whole world. The twist in the “show” of global economy is no less exciting: so far everything seems to follow this scenario. There are, however, signs of the imminent crisis. And this time it might not have a happy ending.

Omnipresent US

Regrettably, almost everything in global economy today is tied up on the United States. Hence, a shock in the US sends “tsunami” waves all over the world. Recently (last fall), the first such tremors could be felt at the stock exchanges. Shares of the US technology companies (Amazon, Apple, Facebook) lost 20 to 30%. As a consequence, a new stock bubble that was growing for years is expected to burst any time in the US.

“Shares of the US technology giants gained a lot becoming very costly, affecting the price/yield indicator. In the US, it used to be 1/20, whereas now it is closer to 1/100. According to analysts, in case of nanotechnology companies this indicator exceeds 1 to 300. The indicator in question shows what period (in years) is necessary to start seeing returns on your investment if you only receive interest on your share in the company's net profit. For comparison, in Russia this indicator is 1 to 10. So, the bubble of the US market is quite menacing. What made it grow so much?

Zombies attack

During the last crisis, the Federal Reserve came up with a crafty plan: in order to support the economy, the Fed started “printing money”, i.e. lending at zero rate, writing off bad debts of some large companies. As a result we saw a sharp increase in the share of businesses that cannot operate without a continued financial aid. Even an annual interest on loan of 1% to 2% makes these companies unprofitable, or quite literally walking dead: zombie-companies.

“The Fed began raising the interest rates, which makes many companies lose their creditworthiness,” the analysts say.

The Old World economies ran into a similar problem, with the ECB trying to boost the economy with low interest rates. As a result, the share of zombie-companies reached 12% in the developed countries. This means that potentially every eighth business might declare bankruptcy.

“The profits of such companies did not cover their expenses on debt even at the post-crisis ultra-low interest rates,” experts of the Bank for International Settlements explain.

The issue of overcrediting concerns today not only businesses, but entire sovereign governments. And while an economic default of a state in Africa is of low concern to the global economy, the fast growing US debt is hardly perceived as a joke.

A debt of USD 22 trillion

The United States attract cash from all over the world, like a giant financial magnet. Even the developed economies got hooked on the US government bonds. For a few years now, they keep using this cash, almost free of charge, for their development. At first it looked like the 'crafty Americans' thought everything through to the tiniest detail. Each year, the US budget had a reasonable deficit gap to be filled in by new loans against an issue of more bonds. This was done deliberately while inciting the world to invest in the US growth. We are now on the way to a turning point when the revenues whipped by the new technologies and start-ups will finally exceed expenditures which would allow to settle the huge debt over a couple of years. So far, however, this has not been the case.

“The debt is growing, and I think, it is growing faster than our economy,” the chairman of the Fed Jerome Powell admitted recently. Over the past 50 years, the US budget was in surplus for four years only. All the other years the United States maintained debts, constantly borrowing money on foreign markets. Thus, in 2000, the national debt was under 6 trillion while today the country is in debt by USD 22 trillion. This trend is quite alarming, and the investors realise that this cannot go on forever. The yield on the US bonds is growing and rose as high as nearly 3%. For the traders this is not a good sign: the higher the profit, the greater are the associated risks. One of the risks is that of the new global economic crisis.