Over the next few weeks, I will be writing a series of pieces on trends in the global economic landscape, and what the implications of these trends are for investors. In this edition, we take a look at what might be the biggest bubble in recent memory: The financial crisis of 2008.
Please, click the following link for part I of our piece on asset bubbles.
Please, click the following link for part II of our piece on asset bubbles.
What goes up must come down
– Sir Isaac Newton (1642-1727)
Because the global financial system is heavily levered and dependent on debt, a prolonged downturn in growth can have devastating consequences for the economy. Policymakers are cognisant of this, which is why they attempt to buoy the real economy via expansionary monetary policy (i.e. more debt). The result of this is that the economy begins each cycle from a higher level of leverage and the lack of purging of prior excesses leads to even greater vulnerability and thus a greater necessity to continuously limit the downside of the economy. This phenomenon is commonly referred to as the debt “supercycle”.
