Financialization

Financialization refers to the increase in size of a country’s financial sector relative to its overall economy, as they shift away from manufacturing, normally as a result of globalization.

Low interest rates

We are approaching the end of the four decade long Debt cycle, signaled by the 2008 global financial crisis.

Credit bubbles

But there are still pockets of rapid debt growth: in China, Australia and Canada. Nils Jenson at Crescat Capital explains:

The Bank for International Settlements (BIS) has identified an important warning signal to identify credit bubbles that are poised to trigger a banking crisis across different countries: Unsustainable credit growth relative to gross domestic product (GDP) in the household and (non-financial) corporate sector. Three large (G-20) countries are flashing warning signals today for impending banking crises based on such imbalances: China, Canada, and Australia….

Pressure on banks to increase capital holdings relative to credit exposure is likely to lower return on equity and slow debt growth.

Low interest rates, rising inequality, and low GDP growth are likely consequences.

Rising inequality

Political unrest

  • Dollar as global reserve currency
    • Unsustainable current account deficits
    • Foreign investors no longer buy Treasuries
    • Federal debt > 120% of GDP