An emphasis on consumption over productivity will doom financial markets in the United States, Europe and China, says Steen Jakobsen, chief economist at Denmark's Saxo Bank.
"We're still not wise enough to realize that our current model is a Ponzi scheme rushing toward its inevitable 'Minsky moment'," Jakobsen writes in a commentary obtained by CNBC
A Minsky moment is a sudden collapse of asset values after a long period of prosperity and rising asset values create heightened speculation using borrowed money.
Burgeoning debt will spark the crash, Jakobsen notes. It will happen when assets' returns aren't sufficient to service the debt incurred to acquire those assets.
"We're still working with the same dog-eared script we were introduced to all of five years ago," he argues. "Maintain sufficiently low interest rates to service the debt burden, pretend to have credible plan, but never address the structural problem and simply buy more time."
In the United States, the Federal Reserve has kept its federal funds rate at a record low since December 2008. Government debt totals $17.8 trillion.
Meanwhile, the Financial Times
offers seven reasons why U.S. stocks my collapse.
- "Leveraged loans to private equity are not just flashing red but have a wailing siren and a man walking in front waving a flag."
- Junk bond yields have plummeted.
- Initial public offerings are partying like it's 1999.
- Merger and acquisition activity is soaring.
- Companies are taking on debt to buy back their shares.
- Valuations are stretched.
- The Federal Reserve's quantitative easing is coming to an end.
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