ChainRift Research
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ChainRift Research

The wild card that could trigger the next financial crisis

It’s been well over 10 years since the collapse of Lehman Brothers and the ensuing financial crisis, which left the world reeling for years after the bubble burst, but the next crash may already be brewing.

Though banks and regulators scrambled to safeguard the general public from another catastrophe, it seems a lot has slipped through the cracks.

These days, it’s not subprime mortgages that are threatening to topple markets — it’s far more complex.

The current financial environment is a veritable minefield of industries on the edge of self-destruction. Ballooning corporate debt, out of control student loans, and the looming threat of a market meltdown, all have analysts and economists sounding the alarms.

Investor demand for low-rated corporate bonds is surging, with over $3 trillion in BBB-rated debt outstanding, and many are one downgrade away from being junk.

Students have doubled their debt since the last financial crisis, with the number now totaling a staggering $1.45 trillion. And the delinquency rate surpasses that of credit cards, auto loans, and mortgages.

Equities, despite recovering from the December rout that wiped hundreds of billions from the markets, are showing significant signs of slowdown, with many even suggesting that the longest bull run in history may be coming to an end.

Emerging markets are also walking a fine line, slammed hard by the trickle-down effect of the trade war between the world’s two largest economies — the US and China — and an increasingly complicated geopolitical atmosphere.

While each of these factors, on their own, might be manageable, together they are creating a perfect storm, leading the economy into increasingly treacherous territory.

And one overlooked risk might just be enough to take down this house of cards altogether.

In fact, the next financial crisis might not even come from irresponsible lending or the collapse in global relationships — it might come from America’s most neglected enemies: hackers.

How cyber-attacks could trigger the next financial meltdown

Cybersecurity has long flown under the radar of the governments worldwide, with hackers set to cost countries across the globe $6 trillion by 2021, dwarfing the economic impact of natural disasters.

Beyond data breaches and ransomware attacks, independent and state-sponsored hackers alike are increasingly targeting major financial institutions, critical infrastructure and other points of support that make the world go round.

Financial firms are already on edge, suggesting that ‘cyber risk’ is the largest threat to the broader economy.

(Image source: New York Times)

The Bangladesh Bank Heist is a prime example of the threat presented by criminals looking to take advantage of security flaws in some of the world’s most used financial systems.

In 2016, hackers launched a series of attacks on the global SWIFT payment platform, falsely submitting instructions to transfer over $1 billion, and while most requests were shot down, the cyber group still managed to get away with over $100 million.

But bank heists are only a small piece of a much bigger puzzle.

Attackers have also stolen credit cards, frozen ATMs and shut down the UK’s entire VISA network.

And it’s not always about money, either.

Politics, both local and global, could play a role in these moves.

In the series Mr. Robot and the novel Fight Club, the main characters launch an attack on data centers, aiming to essentially reset the economy. And while these depictions are fictional, the threat is very real.

In 2015, hackers were able to successfully able to infiltrate and disrupt power grids in Ukraine, leaving over 230,000 consumers without electricity temporarily.

But that’s only the beginning.

Over the past several years, attacks on U.S. critical infrastructure has been steadily increasing. From pipelines to nuclear plants, the threat is growing, and according to the U.S. Department of Defense, these attacks are likely to continue for the foreseeable future.

Conclusion

With the U.S. debt bubble ready to burst, and stock markets teetering on the edge, it’s safe to say that the global economy is in a delicate state… and one major attack could be the catalyst that sends the world into a new recession.

Because of this, cybersecurity is more important than ever.

In September, former Treasury Secretary Hank Paulson said “We tend to fight the last war,” and the statement continues to ring true.

The U.S. government continues to largely neglect its responsibilities as the world’s largest economy, and the repercussions could be severe.

Image credit: Pxhere.com

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Michael Kern

I am a journalist and financial copywriter. My work has been featured on CNN Money, Business Insider, The Guardian, Oilprice.com and Nasdaq.