The next financial crisis is already in the making

Some prominent economists and investors view the size of America’s debt, both public and private, as a warning sign of the coming financial crisis. Some elements indicate that this storm is already in the making.

This is the biggest fear of Nouriel Roubini, also known as “Dr. Doom” because he saw the 2008 financial crisis coming. The economist, who has since redefined himself as a prophet of doom, predicts a perfect storm in 2023, caused by a combination of recession, spiraling inflation and a debt crisis. That was a fear expressed in January, but has yet to materialize as recession risks recede in the US and inflation takes a serious hit, although it rose slightly in July, to 3.2 percent.

But Nouriel Roubini is not the only one who thinks so. Ray Dalio, former CEO of Bridgewater, one of the world’s largest investment funds, believes that the third component – the US debt crisis – is the sword of Damocles over the economy and markets. Ray Dalio should be taken seriously given that his fund returned 32% last year while all markets crashed.

However, last week’s downgrade of the US credit rating by rating agency Fitch Ratings did not make much of an impression. Nor was the rating of 10 US banks downgraded by Moody’s. But with massive debt and high interest rates, all the ingredients for a blowout are within reach. The US regional banking crisis in March this year was perhaps the first manifestation of this.

Business interested Gather some numerical data that indicates a perfect storm is on its way. We’ve added a few more that seem relevant.

Private debt no longer knows borders

• Credit card debt has topped $1,000 billion for the first time, according to data released by the Federal Reserve last Tuesday.
• The total debt of American households is $17,060 billion, most of which is for mortgage loans.
• Corporate debt has risen to $7.8 trillion, according to Janus Henderson, up 6.2 percent from a year ago.

Government debt is even worse

• The national debt stock surpassed $32 trillion for the first time this year, with the potential for an additional $5 billion per day over the next 10 years, according to Bank of America.
• The United States needs to borrow a total of $1,859 billion from the financial markets during the third and fourth quarters of this year, including $103 billion last week alone, to refinance its debt.
• The interest the United States pays on its government debt is nearly $1 trillion annually and continues to rise as interest rates rise.

Defaults in business is on the rise

• By 2023, corporate defaults will exceed last year’s volume.
• In addition, arrears are accumulating to pay off loans. The rate rose to 2.23 percent in the first quarter of this year from just 1.7 percent in the first quarter of 2021, according to data from the Federal Reserve.
• In a recession, US companies could default by a total of $1 trillion, Bank of America estimates, though that is no longer the most likely scenario for 2023, according to the financial institution.

Banks forego their loans with a high risk of default

This is especially true of commercial real estate, a sector in crisis. JPMorgan, Goldman Sachs and Capital One are among Wall Street banks trying to sell major commercial real estate assets, it is reported. bloomberg last week.