GOLDMAN SACHS: Welcome to the ‘3rd wave’ of the financial crisis
Ben Moshinsky
BusinessInsider.com
Oct. 12, 2015
Remember the 2008 financial crisis? Well, it’s back.
The financial disaster, which started seven years ago with the collapse in US real estate and investment banking, has entered its third phase, according to a team of Goldman Sachs analysts.
This wave is characterised by rock-bottom commodities prices, stalling growth in China and other emerging-markets economies, and low global inflation, Goldman Sachs analysts led by Peter Oppenheimer said in a big-picture note.
This triple whammy has its roots in the response to the first two waves of crisis — the banking collapse and European sovereign-debt crisis — and it is all part of the so-called debt supercycle of the past few decades.
Central banks all rushed to lower interest rates in response to the first two debt-fueled crises, encouraging investors to lend in emerging markets such as China for a decent return.
Now that interest rates are looking as if they might go up, lenders are heading for the exits and investors are pulling out of commodities, which are closely linked to the fate of the emerging economies.
That’s what links the emerging-market wave, or EM, to the first wave. As the US housing market collapsed, low interest rates “helped fuel credit growth and increased leverage, particularly in China,” according to the note. Combine that with China’s attempt to transform itself and escape the middle-income trap, and the plunge in global commodity prices, and you have a new crisis.
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