A chief economist at HSBC has expressed concerns about the vulnerability of the global economy, stating that it is “like an ocean liner without lifeboats. If another recession hits, it could be a truly titanic struggle for policy makers.” HSBC is a London based multinational bank and is considered the world’s third largest by assets.
In the past, governments have been able to implement certain fiscal or monetary policy after a crash or time of market turmoil by buying up bonds, keeping interest rates artificially low, or by flooding the market with cash. What HSBC’s Steven King warns is that there now is a significant munitions shortage, both in the United States and worldwide. He continues:
“This is a major problem. In all recessions since the 1970s, the US Fed funds rate has fallen by a minimum of 5 percentage points. That kind of traditional stimulus is now completely ruled out.”
In simpler terms, the Federal Reserve has held interest rates incredibly low in order to encourage borrowing, home sales, and investment of capital. In the event of another recession, however, King warns the Fed will be unable to lower these rates any lower. They’re already so close to zero as it is.
Combine this situation to a budget deficit that isn’t falling any time soon, high welfare and food stamp enrollment, and labor force participation at its lowest since 1978 and you get a nation with no tools to dig itself out of a hole, should it fall.
What could trigger the next recession? The Federal Reserve could trigger the next recession by raising interest rates too soon, “repeating the mistakes of the European Central Bank in 2011 and the Bank of Japan in 2000.” Business Insider lays out three more likely triggers of the next recession.
- The world is drowning in debt, warns Goldman Sachs
- Looming bankruptcy in America to be more severe than those prior, says Porter Stansberry