How many financial crises have there been in the world?

Since 1788, there have been 13 financial crises (both large and small)

The financial tsunami in the United States caused a global financial crisis, from 1922 to 2009 In 2008, the global economy had three major... In the past 50 years, we have also had several small economic fluctuations. We call them "three economic contractions." The subprime mortgage crisis is a new type of financial crisis, and its inherent mechanism is financial products. Due to insufficient transparency and information asymmetry, financial risks are gradually transferred and amplified to investors. These risks spread from the housing market to the credit market and capital market, from the financial field to the economic field, and spread from the United States to the U.S. through investment channels and capital channels. Globally.

Most opinions in the international economic community believe that although the subprime mortgage crisis has had a certain impact on the world economy, it cannot be judged that it will trigger a global economic crisis. The IMF recently stated that the international financial market is turbulent. The situation is still "under control." However, a few people believe that the subprime mortgage crisis may lead to a reversal of the current world economic prosperity cycle. Soros believes that the subprime mortgage crisis is the most serious in the 60 years since the Second World War. The financial crisis is the end of the era of the US dollar as the world currency. Martin Wolf, a critic of the British Financial Times, regards the subprime mortgage crisis as a crisis of the Anglo-Saxon financial system. ) believes that the Federal Reserve's continuous interest rate cuts will be unable to prevent the U.S. economy from falling into recession.

Based on the analysis of the available information, the author believes that the possibility of a world economic recession exists because the subprime mortgage crisis has not yet bottomed out. , its uncertainty risks are more worthy of vigilance, and its impact on the global economy and finance cannot be underestimated.

Excess liquidity and subprime crisis

After four consecutive years of rapid growth. After the growth, the world economy showed signs of adjustment in 2007. The pressure of slowing economic growth and the threat of inflation cast a shadow on the prospects of the world economy. Flooding liquidity promoted the growth of the world economy and also contributed to the rise. The rise in prices caused inflation to spread around the world; excessive liquidity amplified the "confidence" of global investors and led to the expansion of global credit. The root cause lies in the time lag of monetary tightening policy and the global excess liquidity.

The time lag of monetary tightening policy

After the "9·11" incident, the US economic growth slowed down. In order to stimulate economic growth, the Federal Reserve has lowered interest rates 13 times, successively to 1%. Although this move has stimulated economic growth, its side effects cannot be ignored. On the one hand, the real interest rate is too low, which affects domestic credit, especially real estate loans. Expansion has increased the supply of U.S. dollars; on the other hand, low interest rates have devalued the U.S. dollar, laying the foundation for global liquidity flooding.

In fact, the real cause of the subprime mortgage crisis lies in the timing of the U.S. monetary tightening policy. In response to rising housing prices and other signs of economic overheating, the Federal Reserve raised interest rates 17 times in a row, raising the benchmark interest rate from 1% to 5. 25%. As U.S. interest rates continue to rise, the cumulative effects of the policy have gradually accumulated, making customers with poor credit ratings unable to afford the loan burden. In order to avoid a further increase in bad debts, lending institutions tightened their monetary policy, worsening the financial situation of loan customers. The intensified bad debts were transmitted to the global financial market and investors through the securitization chain, eventually triggering a sudden and large-scale subprime mortgage crisis.

Global excess liquidity

The reason for the unusually serious impact of the crisis is global excess liquidity. The imbalance of the global economy, the depreciation of the US dollar, low interest rates and the extensive use of financial derivatives are the main causes of global liquidity flooding. For the subprime loan market, general lending institutions will adopt a "loan-grudging" principle out of prudent considerations. Originally, its loan customers had poor credit ratings, but in the context of global oversupply of funds, lending institutions obtained sufficient sources of funds through subprime securitization, while the continued rise in housing prices made lending institutions ignore risks. Loan review standards were arbitrarily lowered. Loan standards were lowered and loan scales were excessively expanded, which were then transmitted through the securities market to investors around the world who invested in U.S. subprime loan securities, eventually turning into potential global financial risks.

Domino effect in financial markets

In order to stimulate the economy, the Federal Reserve has cut interest rates multiple times while relaxing financial controls: On the one hand, it has lowered credit standards and encouraged commercial banks to borrow from companies with low credit ratings. On the other hand, it allows financial institutions to invest in high-risk assets with low-cost borrowing, allowing investment banks to continuously design complex and highly leveraged derivatives to expand their sources of profits, and provide them to customers. Hedge funds have emerged in large numbers. While providing liquidity and diversifying risks, the derivatives market also binds various financial institutions together with liquidity as a chain; once there is a problem in one link of the chain, it will cause a chain reaction.

The U.S. economy has entered a period of economic contraction

With the outbreak of the subprime mortgage crisis, more dominoes began to fall. The market also began to move to the other extreme, and abundant funds seemed to disappear overnight. The U.S. economy is facing a series of problems such as inflation, shrinking real estate market, and credit crunch.

This crisis does not stop at the financial market, but affects the real economy through multiple channels.

The End of the U.S. Economic Growth Model

The subprime mortgage crisis marks the end of the 27-year national debt growth model of the United States based on "dollar expansion, capital market expansion, and twin deficit expansion". The factors that drove the rise in real estate prices in the United States in the past five years were neither the expansion of total social wealth, the widening gap between rich and poor, double-digit inflation (such as Russia), nor the large influx of immigrants (such as New Zealand), nor the economy Rapid growth, urbanization of the population, and scarce land supply (such as in China) are purely due to the "false demand" brought about by financial innovation. Therefore, the outbreak of this crisis is tantamount to "drawing money from the bottom of the cauldron" for the demand for real estate in the United States.

On the surface, the recession caused by the subprime mortgage crisis is a consumption downturn and economic slowdown caused by credit contraction. But what behind the crisis reflects is the end of the U.S. debt/consumption model in which "global financial institutions lend money to help low- and middle-income Americans buy homes." For a long time, the United States has relied on twin deficits, not only borrowing money to maintain its own consumption, but also borrowing money to maintain its own investment. Its overall wealth consumption far exceeds what its wealth creation capacity can support. Although subprime debt and related financial innovations have brought the U.S. prosperity model of debt growth to its extreme, they also mark the beginning of the Reagan era based on the external expansion of U.S. dollar credit and the internal expansion of the U.S. capital market through huge fiscal deficits, The 27-year boom model driven by trade deficits and attracting international capital inflows is likely to be unsustainable.

The U.S. economy has fallen into recession

It seems certain that the subprime mortgage crisis has caused the U.S. economy to fall into recession. The only uncertainty is only the extent of the recession.

At the beginning of 2008, the Federal Reserve cut interest rates by 125 basis points in just 8 days. On March 18, the Federal Reserve cut interest rates by another 75 basis points, lowering the federal funds rate to 2.25%. However, this regulatory action can only It will slow down the turmoil in the global financial market in the short term, but it will be difficult to reverse the economic decline of the United States in the long term. Such consecutive large-scale interest rate cuts are rare in history, which shows that there is indeed a serious problem in the U.S. economy.

The current more objective forecast is that the US economic growth rate in 2008 will be only 2%, which is far lower than the 3.1% forecast at the end of 2007. A series of recently released economic data also show that the subprime mortgage crisis is still worsening and is spilling over to all aspects of the U.S. economy, impacting the overall U.S. economic trend. As the property market cools, the subprime mortgage crisis worsens, and economic growth slows down, the U.S. unemployment rate has also risen sharply recently, becoming the most direct sign of the U.S. economy's unfavorable outlook. In December 2007, the unemployment rate in the United States rose to 5%, a new high in two years; while the number of new jobs was only 18,000, the lowest level since August 2003. The U.S. Department of Labor recently announced that the unemployment rate in February was 4.8%, which remains high. Judging from the historical experience of the two economic recessions in the early 1990s and the beginning of this century, the unemployment rate increased significantly before the recession occurred. Since hitting the bottom in March 2007, the unemployment rate in the United States has increased by 60%; judging from the situation for more than 50 years, such a high increase within one year is usually a sign of economic recession. The March report released by the Institute of Supply Management (ISM) showed that the U.S. manufacturing activity index fell to 48.3 in February after rising slightly in January, the lowest level since April 2003, and was accompanied by some other unfavorable factors. Condition. A similar situation heralded the coming of the U.S. recession in 2001.

The most worrying thing is that the worst moment for the U.S. economy may be yet to come. According to the timing of subprime lending in the United States, the peak period of loan repayment arrears should be from the second half of this year to the first half of next year. Therefore, the subprime losses exposed now may only be a small part of the overall losses of the world financial system. The subprime crisis is not Didn't hit bottom.

The global economy faces the threat of stagflation

The most fundamental impact of the subprime mortgage crisis on the global economy is that it will change the structure of global policy goals and bring about mismatches in the economic cycles of various countries, causing accidental The "high-quality game equilibrium" cannot be maintained. Without in-depth monetary policy coordination and cooperation, fragmented monetary policy regulation will lead to a "poor game equilibrium" of global economic stagflation.

US trade imports shrink

One of the channels through which the subprime mortgage crisis leads to a global crisis is international trade. The US economic decline and market weakness will affect the global economy through international trade channels. The United States is the world's most important import market. A recession in the U.S. economy will reduce U.S. import demand, which will lead to a slowdown in exports from other countries, thereby affecting the GDP growth of these countries. This has a particularly significant impact on those countries or regions that rely on net exports to drive economic growth, such as Germany, Canada, Mexico, East Asian emerging market countries, and oil-exporting countries. In addition, a sharp depreciation of the U.S. dollar will harm the international competitiveness of exports from other countries, especially those countries and regions that compete with U.S. exports such as the European Union and Japan.

Capital "turbulent flow"

The subprime mortgage crisis will increase the volatility and uncertainty of global capital flows.

In the short term, in order to make up for losses and ease the pressure on capital adequacy ratios, U.S. financial institutions have withdrawn investment from global markets; at the same time, sovereign wealth funds from developing countries have also increased their investment in U.S. financial institutions, and international The direction of short-term capital flows is from other countries into the United States.

In the medium term, in order to regain profitability, U.S. financial institutions, as well as the Federal Reserve's continued interest rate cuts and the continued weakness of the U.S. economy, will cause international short-term capital to flow from the United States to emerging market countries for arbitrage, thus boosting the growth of emerging market countries. asset price.

In the long term, once the dust of the subprime mortgage crisis settles, the U.S. economy bottoms out, the Federal Reserve re-enters the interest rate hike cycle, and the value of the U.S. dollar turns from falling to rising, international short-term capital will again shift from emerging markets to The country returns to the United States. This last scenario deserves special attention because previous financial crises in developing countries often occurred after US interest rates increased and the US dollar appreciated.

The deceleration of world economic growth is a foregone conclusion

Judging from the currently available statistical data and forecast reports from research institutions, although there are still doubts about whether the world economy will fall into recession, the world economy will decline in 2008. The slowdown in economic growth has become a foregone conclusion.

In 2007, the growth of major industrial countries decelerated. As major emerging market economies continued to maintain strong growth and largely offset the negative impact of the slowdown in U.S. economic growth, the world economy still maintained rapid growth. In 2008, whether the world economy will experience a recession will mainly depend on the performance of emerging market economies.

Financial risks in emerging markets have increased

Under the subprime mortgage crisis, emerging markets may face greater financial risks. Some practices of some Asian countries after the 1997 financial crisis may become triggers for the next crisis. For example, the current huge foreign exchange reserves of Asian countries have indeed enhanced their ability to withstand financial market turbulence, but at the same time they have also brought risks to countries with large flows of capital. Investors from Asian countries are increasingly inclined to invest in relatively safe Western developed countries. Reports from authoritative organizations such as the United Nations Economic and Social Council for Asia and the Pacific and Lehman Brothers pointed out that the risk of capital outflows from developing countries such as Southeast Asia has recently emerged, and the possibility of another currency crisis has increased. According to World Bank statistics, in 2005, the average proportion of internal savings and investment in East Asian economies (excluding China, Japan and Hong Kong) fell to less than 30% and 25% of GDP respectively, reaching the lowest level since the 1990s. Stephen Roach, chief economist at Morgan Stanley, also believes that high-risk mortgage loans are like the Internet back then, which may "puncture" the global asset bubble, and highly indebted emerging market economies such as Turkey may bear the brunt.

As China’s openness deepens, China’s economic participation in the world economy and globalization also deepens. Therefore, once the U.S. economy falls into recession, the Chinese economy will also be affected. This is mainly reflected in four aspects: first, the decline in U.S. import demand will affect China's exports, which will in turn affect economic growth and employment; second, once the U.S. dollar depreciates significantly, the international purchasing power of China's huge foreign exchange reserves will shrink; Third, the United States has entered an interest rate cutting cycle, which will make it more difficult for China to raise interest rates to curb inflation; fourth, the U.S. economic recession will increase the scale and frequency of international short-term capital flows in and out of China, exacerbating domestic financial risks.

Global Inflation

Currently, whether it is in developed countries where the economic cycle is changing from high to low, or in emerging market countries where the economic cycle continues to rise; whether it is the United States, which is on the interest rate cut channel. , the European Union and Japan are still standing still, and even in China, which implements tight monetary policies, inflation can be seen everywhere. It is not difficult to conclude that the current inflation is largely due to the global inflation caused by the shift of the aggregate supply curve.

Inflation in Asian countries and regions has reached its highest level in recent years. The inflation level in Central Asia in 2007 was close to 9%, that in South Asia reached 6%, and that in Southeast Asia was about 5%. In November 2007, the US CPI increased by 0.8% month-on-month and 4.3% year-on-year, the highest increase since September 2005; while the PPI in November increased by 3.2%, the single-month increase reached the highest level since August 1973. This year It rose another 1% in January, well above market expectations of 0.4%. The appreciation of the euro and the increase in oil prices have also caused the price level in Europe to frequently exceed the 2% warning line. In the context of rising oil prices, it seems that we cannot be too optimistic about the decline in inflation.

At the same time, the response policies after the subprime mortgage crisis also contributed to the development of global inflation. Due to the credit crunch caused by the subprime mortgage crisis, monetary authorities such as the Federal Reserve and the European Central Bank followed the rescue operations used in response to the bursting of the Internet economic bubble and the "9·11" incident, and adopted methods of injecting liquidity and cutting interest rates. For example, on December 20, 2007, the European Central Bank took the most powerful action. The two-cycle loan of 348.6 billion euros it injected into the market set a record for a single "blood transfusion". The Federal Reserve has continuously cut interest rates after the subprime credit crisis, cutting interest rates by 200 basis points in the first two months of this year alone. Five central banks from major Western economies, including the Federal Reserve, announced on March 11 that they had decided to take joint measures to inject funds into the financial system. This is the second time in the past three months that Western central banks have joined forces to deal with the credit crunch.

Although this response alleviated the sharp liquidity crunch caused by the subprime mortgage crisis in a short period of time, it fueled the momentum of global inflation.

Stagflation - a hidden worry in the global economy

The possibility of economic recession and inflation at the same time has triggered concerns that the global economy will fall into stagflation. This round of inflation is largely caused by high commodity prices caused by flooding of liquidity. For many countries, it mainly manifests as imported cost-push inflation. For demand-pull inflation, the decline in effective demand caused by an economic recession will lower the price level, making monetary policy weigh between suppressing inflation and promoting growth; while for cost-push inflation, recession The resulting drop in demand may not be as effective as it should be, leading to stagflation.

In the next few years, when the global economy falls into recession, international commodity prices are likely to continue to rise, and the pressure of imported inflation will further increase. The U.S. dollar exchange rate, an important factor in determining commodity prices, may still support higher prices. If global commodity prices remain high, the pattern of imported inflation in many countries will continue, thereby increasing the possibility of stagflation.