News / Economic Divide

The next financial crisis is here

Sunday, 17 April 2016 7:49 AM [ Last Update: Monday, 18 April 2016 8:16 AM ]

A pedestrian looks at an electric quotation board showing share price indexes of the Tokyo Stock Exchange in front of a securities company in Tokyo, Japan, February 29, 2016. ©AFP

World debt has continued to increase since the financial crisis of 2007-08 with an alarming rate. Based on the current figure released by the BIS, the Bank of International Settlements, the current world debt stands at $153 trillion. The important point to note here is that $153 trillion in debt represents non-financial sector debt.

Taking into account government debt and financial sector debt, this figure could go well past 200 trillion dollars. Global non-financial sector debt from the first quarter of 2007 to the third quarter of 2015 has surged by $53.4 trillion.

The last time around, household and private sector was leveraged prior to the financial crisis of 2008-09 and was later bailed out by the government sector. With the government sector leveraging and with several advanced economies entering into an inescapable debt trap, there is no room for bailout in the next crisis.

China also poses a great risk due to its economy cooling, with the shadow banking sector posing additional risk. Add to that the slowing down of developing economies due to weak global growth: the stage may be set for the next financial crisis.

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economic crisis