Tags: Das | markets | risks | 2008

Financial Author Das: Global Markets Face Bigger Risks Than in 2008

By    |   Tuesday, 06 January 2015 08:52 AM

In 2008, the global financial system nearly collapsed and took financial markets with it.

But now, "global financial markets face serious economic and non-economic risks that are above and beyond the challenges seen in 2008," Satyajit Das, a former banker and author of "Extreme Money," writes in an opinion piece for MarketWatch.

So what's the problem?

"Social stresses are increasing. High levels of unemployment have persisted, despite economic recovery in many countries," he says.

"Some older or less-skilled workers face a bleak future, with no real prospect of ever returning to the workforce. Youth unemployment is also high, creating a real risk of a lost generation — especially in Europe."

For those lucky enough to have jobs, "income levels are stagnant or falling, and working conditions are deteriorating"

In addition, geopolitical risks are rising and major political parties in many countries have lost support.

"Economic difficulties and loss of faith in traditional political parties contributed to the rise of fascism and communism in the 20th Century," Das explains.

"Financial markets and investors prefer to ignore these risks. They are relying almost exclusively on continued monetary stimulus. Reduction of the Fed’s liquidity injections is being offset by looser policies in Japan, China and Europe," he adds.

"In effect, few of the problems that led to the Great Recession of 2008 have been resolved. . . . Weaker government finances mean that the ability to support the economy and financial system is limited. With interest rates at zero and liquidity already abundant, policy options are restricted. Emerging market weaknesses mean that the region will not contribute to global growth as it did after 2008."

In the United States, average hourly wages rose only 2.1 percent in the 12 months through November, barely topping the 1.4 percent increase in consumer prices.

Meanwhile, star investor Jim Rogers is concerned about currency wars.

"Whether it's an intentional war or an accidental war or side effect, I don't know, but it's certainly happening," Rogers tells Wall Street Daily. "Just look around, you see that nearly every currency in the world is down a lot against the U.S. dollar, except the Chinese renminbi."

The dollar hit an eight-year high against the euro Monday.

"I don't know if somebody sat around and plotted, 'Let's have a currency war,'" Rogers explains. "They just said, 'What we need to do is print a lot of money,' without realizing it's going to cause currency fluctuations."

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In 2008, the global financial system nearly collapsed and took financial markets with it.
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Tuesday, 06 January 2015 08:52 AM
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