Analyst who predicted 2008 global financial crash warns another one is on the way — and not just because of coronavirus

Economic forecaster says global recovery has been fuelled by bubbles in markets around the world 

Richard Hall
New York
Wednesday 11 March 2020 00:11 GMT
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An analyst who predicted the 2008 global financial crisis has warned that another crash is on the way, and this time it will be much worse.

Jesse Colombo, an economic forecaster and columnist who identified a housing and credit bubble in the US prior to the 2008 crash, says a number of new bubbles in markets around the world are set to burst.

“We are already very late in the cycle, and coronavirus is basically the one-two punch. But we were already hurtling towards recession before anyone ever heard of coronavirus,” he told The Independent.

Global markets tanked on Monday, with the US and UK stocks suffering their worst day since 2008 as investors sought to unload stocks over fears of instability caused by the coronavirus and an oil price war between Russia and Saudi Arabia.

Donald Trump has in recent days sought to blame the downturn squarely on those two factors. But the underlying problem, according to Mr Colombo, is much deeper.

As early as June last year, he said he had identified bubbles in more than 20 markets, among them European real estate, US stocks, US household wealth, corporate debt, leveraged loans, US student loans, US auto loans, tech startups and shale energy.

These bubbles have fuelled much of the global recovery over the past 12 years, he argued. One of the largest is a Chinese credit bubble driven largely by infrastructure spending.

“It’s an illusion of an economic recovery driven by the inflation of economic bubbles. Now I believe that’s beginning to burst,” he said.

“I’ve come up for a term for this, it’s called Bubblecovery — a bubble-driven economic recovery.”

In 2004, when he was an undergraduate, Mr Colombo started the website, which warned of an impending crash. In the years since, he has frequently predicted another crash, and that the next one will be even bigger than the 2008 crisis.

“As bad as 2008 was, what’s coming is going to be worse because there is so much more debt now — nearly $100 trillion worth of new debt.”

“The US housing bubble formed over five years. We’ve had 11 years of record low interest rates and stimulus — we’ve had much more time for those bubbles to form and there are far more of them,” he said.

Mr Colombo is not alone in predicting another crisis. Throughout her now-suspended campaign to become the Democratic nominee for president, Massachusetts senator Elizabeth Warren — who also warned of a crash before 2008 — has also sounded alarm bells.

“When I look at the economy today, I see a lot to worry about again. I see a manufacturing sector in recession. I see a precarious economy that is built on debt — both household debt and corporate debt — and that is vulnerable to shocks. And I see a number of serious shocks on the horizon that could cause our economy’s shaky foundation to crumble,” she wrote in July last year.

The Dow Jones Industrial Average dropped more than 2,000 points on Monday, before rebounding the next day to recover around half of its losses.

Mr Trump has touted the rising stock market value during his presidency as a key indicator of economic success, and a pillar of his re-election bid in November.

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