Yellen: Next financial crisis not happening during our lifetime

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Janet Yellen is a very powerful lady. She is the chair of the Federal Reserve of the U.S.  In fact Federal Reserve’s actions would affect most countries in the world. Just look at what happens every time there’s an expectations of a rate increase to the currencies of the world. Recently, she shared with the world that the actions of the U.S. Congress and the banking regulators have created a financial system that can withstand significant stress without breaking. Here’s one of those articles in USNEWS about it. In other words, she believes the chance of a financial crisis within our lifetime is nil. She was referring to just the U.S but I think if the U.S. does not run into another 2008 mortgage crisis, the world should be safer. This is because even though China has received a downgrade in its sovereign rating, I have not read about any economist predicting that it will suffer a financial crisis. In terms of her position however, it may not be totally secured. Here’s an article about it in CNBC. 

Before we start to cheer about her statement, these are the four things to worry about the state of the U.S economy by Investopedia.  First one is the limit of growth in an advanced economy such as the U.S. Historically, it does not happen even with Trumps’s deregulatory and tax cutting programs. Trump said that the measures he took would enable the U.S economy to hit growth rates of 3-4 percent. The International Monetary Fund (IMF) disagrees too.

Second worry according to Investopedia is debt burdens. Yes, they have debt burdens too. Public debt is already 106 percent today and is said to be going towards 107 percent within a decade. This high level of debt meant that personal consumption expenditure is unlikely. (High debts meant little money left and this means no spending. Perhaps the U.S. government can borrow more money…)

Third worry according to Investopedia is low investment. It has low rates of investment and low productivity too.  Last but not least would be an aging workforce. Population growth is also slowing. Trump’s programmes include limiting migration which will not help the situation. (It is highly unlikely that he can force all the U.S corporations to move their production sites back to the U.S. If they do, I seriously doubt their ability to produce products at a competitive price versus China and even South East Asia.)  Here’s that full article again. 

By the way, no one could predict with any accuracy with regards to the next financial crisis. If there are, then we would have been able to avert the crisis. Let’s not expect anything different. Having said that however, it is true that many central banks around the world are already taking pro-active actions and many banks are doing well. Here’s the news for some Malaysian banks.  I hope she is right and that I do not face another financial crisis. My personal view remains the same. It is not likely that the next financial crisis will start with Malaysia. Are we vulnerable? Definitely, since TPPA was cancelled and Trump is now looking for countries which he says are being unfair to the U.S.  Trump’s targeted countries in nbcnews.com Trump hates trade deficits and will try to reduce this to lower numbers or punish countries he call ‘trade cheats.’ I do not think Malaysia is his only target. In that sense, we should still be safe. Happy following.

written on 3 July 2017

Next suggested article: Unsustainable spending will bring the next financial crisis

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