Chapter 5The Next Financial Crisis and the New Financial System

Today we seem to have forgotten one of the characteristics of our financial system: As one bubble pops, another one is formed. There are clear bubbles in the global economy today, yet most people tend to brush them aside, citing two reasons why they should not be worried:

  1. The global economy just went through a crisis and we are not due for another one for at least a few years.” However, if you go back to Chapter 2, you will see that we have averaged one major financial crisis every three years since 1971. It has already been six years since the global financial crisis. I consider the Eurozone debt crisis, which began in 2010, an extension of that crisis.
  2. Governments and central banks know how to handle it and will be able to jump in to save the day if another crisis were to happen.” When I hear someone say that the Fed or the central banks can fix the problem, my response is: If they knew what the problems were and had the power to fix them, then shouldn't they have done so by now? After all, they've had six years to work on it. QE1, QE2, and QE3 are clear examples of the Fed not understanding the problem, much less being able to solve it. The European Central Bank, with all its strong words, has not fixed a single problem among its members.

I am certain that another crisis is just around the corner. This time, however, the problem will be much bigger and the effects will last much longer. To see why I believe ...

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