Is a new world financial crash on the cards? Two US banks have recently gone into liquidation, namely Silicon Valley bank and Silvergate.
The reasons are clear:
1. The pandemic caused major slow down in economic activity.
2. Governments and Companies borrowed huge amounts to cover the workforce’s wages and other costs.
3. The Ukraine war has affected economies around the world with energy and food prices shooting up. Countries who import high volumes of these commodities are facing bankruptcy or the need for bail outs as their reserves run out.
4. The war and post pandemic restarts caused major inflation so Interest rates have risen sharply. For banks this means bond yields are going down as they hold a large proportion of their assets in government bonds.
5. The crypto market is imploding.
6. All this means that the world debt total is at an all time high which is not sustainable.
Thus the recent bank liquidations could be a turning point. Banking crises are contagious and once one bank fails the markets start to panic as interconnectiivity is high and there is a domino effect. Remember Bear Sterns and Lehman Bros.
China and S.Korea are already struggling with a major crash in property markets, the west could be next.
What can the ordinary family do? The first thing would be to spread any deposits you have around several institutions so that you do not go over the guarantee limit and in the event of a new Northern Rock you are not left with no ability to withdraw cash. Next, if you can, reduce any mortgage as much as possible as deals will be running out and new fixes will be at much higher rates.
Lastly, pray it doesn’t happen but the early signs are not good.
The reasons are clear:
1. The pandemic caused major slow down in economic activity.
2. Governments and Companies borrowed huge amounts to cover the workforce’s wages and other costs.
3. The Ukraine war has affected economies around the world with energy and food prices shooting up. Countries who import high volumes of these commodities are facing bankruptcy or the need for bail outs as their reserves run out.
4. The war and post pandemic restarts caused major inflation so Interest rates have risen sharply. For banks this means bond yields are going down as they hold a large proportion of their assets in government bonds.
5. The crypto market is imploding.
6. All this means that the world debt total is at an all time high which is not sustainable.
Thus the recent bank liquidations could be a turning point. Banking crises are contagious and once one bank fails the markets start to panic as interconnectiivity is high and there is a domino effect. Remember Bear Sterns and Lehman Bros.
China and S.Korea are already struggling with a major crash in property markets, the west could be next.
What can the ordinary family do? The first thing would be to spread any deposits you have around several institutions so that you do not go over the guarantee limit and in the event of a new Northern Rock you are not left with no ability to withdraw cash. Next, if you can, reduce any mortgage as much as possible as deals will be running out and new fixes will be at much higher rates.
Lastly, pray it doesn’t happen but the early signs are not good.
Last edited:
