Financial Crisis
Everything we hear is an opinion, not a fact. Everything we see is a perspective, not the truth.
We are buried by unlimited information from various channels daily. When is the next financial crisis? We must learn to wisely differentiate whether it is just noise or a real signal.
Let’s ask ourselves first: what causes a financial crisis?
One of the main reasons is that banks have been lending too much money to companies and ordinary people, but they use it inefficiently.
In the long term, people and companies are unable to manage the repayments when they do not have enough capability to pay back. This results in a crisis and banks may refuse to lend again in the future, that leads to the economy shrinking. It’s important to understand “how the debt is used”. Some companies or people borrow 1 dollar and then generate 5 dollar profits, some just reach a breakeven point or P&L being negative. Debt can drive economic growth if people invest in rewarding projects.
Is it necessarily evil when the financial crisis comes?
It depends on how we perceive the financial crisis. There are two sides to every coin. It is good for some people to reshuffle their asset if they recognize the investment opportunity and enter the market.
It is bad for careless rich people because of the devaluation of their asset. In general, the recession is healthy because the market will automatically adjust its asset’s price if it is too overpricing.
In short, I do not think a serious financial crisis will come soon. Simply because the current bubble is not big enough compared to it was in 2008. There will be some fluctuations in the future stock market due to the negative news and investors mood. Yet, the effect on the real economy won’t be as severe as the 2008 financial crisis if companies leverage debt wisely and which can positively lead to overall productivity and GDP growth.
However, there are still some unpredictable variables like Donald Trump’s month, global politics and companies’ CEO’s behavior in personal life…, etc, which may influence region or global economy in a short-term or cause a long-term recession.
