The Fed Is Possibly Gearing Up For Another Great Recession

( According to the 19FortyFive website, Leo Tolstoy is credited with saying that while happy families are all similar, unhappy families are all different in some way. The same might be said of recessions, particularly the one that lasted from 2008 to 2009 and will undoubtedly occur globally next year. Even while the upcoming recession won’t be caused by the same flaws that made the 2008–2009 slump so severe, it won’t make it any less unpleasant.

On the plus side, today’s global economy is very different from the one that saw careless subprime lending in the U.S. housing market and resulted in the bankruptcy of Lehman Brothers in September 2008. In addition, every effort has been made since 2008 to strengthen the world’s banking systems. This makes it highly improbable that we will face a worldwide banking crisis of the same size as that which occurred in 2008 in the event of a global economic collapse.

A “anything bubble” dominates the global economy. Too many of the worldwide economy’s equities, housing, and credit sectors have been experiencing bubble-like circumstances due to ultra-low interest rates and substantial central bank money printing. The Chinese real estate bubble and careless lending to heavily leveraged developing economies deserve special attention. This financing may be preparing emerging markets for another debt disaster.

The “everything” bubble is now showing signs of popping, and central banks worldwide are being pushed to hike interest rates to deal with the highest inflation in many decades. Financial market volatility may be ahead, which might lead to significant issues in the mainly unregulated non-bank sector of the global financial system.

The fact that the world economy is currently experiencing several allegedly once-in-a-100-year shocks is another way it is worse than it was in 2008.
First, the Covid crisis resulted in the lockdown of a significant portion of the global economy. Then came the conflict between Russia and Ukraine, which skyrocketed the cost of food and oil globally.
The Fed appears to be inviting a hard landing by aggressively raising interest rates when domestic economic weakness is just beginning, and a financial storm is brewing abroad. The appropriateness of the Federal Reserve’s present hawkish position on the monetary policy must be seriously questioned in light of all of this. The global economy could see a rough landing as a result, particularly if the global “everything” bubble busts and a string of defaults in emerging markets results.