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The upcoming financial crisis

Sep 17,2018 - Last updated at Sep 17,2018

While media attention around the world focused last weekend on the tumultuous weather conditions in the southeastern part of the US, human-made financial tsunamis in the Philippines and Sudan were brewing. The oceanic cyclones are dumping rain and liquidity in amounts unprecedented; the financial world is drowning in its debt and monetary mismanagement.

On the financial front, the world at large was reminiscing over the fate and eventual death of the financial Wall Street giant Lehman Brothers. In retrospect, well-known TV channels, like Bloomberg, CNBC and the BBC, inquired whether Lehman Brothers could have been saved. Their motive for revisiting the issue was to propose a plan that could salvage financial institutions should they encounter a similar fate.

According to available data, US households owe the banking system about 25 trillion dollars in mortgage, credit card, student loans, car loans and other types of credit. If any of these various loans burst asunder, especially student and credit card loans, many banks would be stressed beyond limits and could become insolvent. Although the US economy is showing positive signs of recuperation, there are signs that household borrowing is rising faster than the growth rate in GDP. The risk is there.

Add to that the fact that the US government’s sovereign debt constitutes about 29 per cent of the world’s total debt. EU countries’ debt stands at 26 per cent and Japan’s debt is about 19 per cent. The three countries owe the world about 75 per cent of the total sovereign debt.

The risk that the US, EU or Japan may falter on the repayment of their respective debt is also possible. While China has 6 per cent of the world’s total debt, it can weather the storm although this may depend on its ability to collect its loans, extended mostly to the US, Europe and Japan.

The riskiest two places where the financial problem can escalate and infect the rest of the world is the EU and Japan. In light of looming trade and currency wars, a collective plan to save the world may prove very difficult to achieve.

In a conference held on the occasion of the 10th anniversary of the fall of Lehman Brothers, experts were scavenging for solutions. They came up with something called “new finance”, they also lamented the fact that interest rates have been too low for so long as is attested by both  Mark Carney, governor of the Bank of England, and Mario Draghi, president of the European Central Bank.

We could be heading towards a crisis and the Arab world stands to lose whatever remaining funds it has, some of which has already been exhausted by arms purchases, war costs and other sundry expenses.

I endorse Bernie Sanders’ idea presented in his article in The Guardian under the “Future of the International Left” ongoing series, in which he warned against the new financial oligarchs who view the world as their “economic plaything”.

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