Are we entering a global financial crisis?

Question

This past week was a crazy time for the UK.  The government did a complete 180 on several fronts.  The reason later came out.  The recent hike in interest rates was causing their pension system to unravel due to some risky financial derivatives.  Some are saying these trillion-dollar pensions may be insolvent.  If so, the risk to the financial system will not be felt only in the UK and Europe.

Victor Menashe does a great job summarizing the concern in this 5-minute podcast: http://www.victorjm.com/2022/1...

Reuters does an even better job detailing the issue in this article: https://www.reuters.com/busine...

What do you think?  Are we headed for a crisis?

J. Mitchell Bernier · Answer

@Greg Scott It is looking more and more that way. CNBC even noted that before the rate rises in the UK none of them knew how leveraged these pensions were, said it was the same way in 2006-2008 when CDO's were unheard of. Inflation is far worse across the pond and the longer the Ukraine war goes on the worse it will get over there. The major question is how exposed are we to a global crisis are that starts outside the US?

In 2008 the US housing downturn caused everyone to come down, because so many foreigners were invested here too. I don't believe, but can't be sure, that this is the case with US investors invested into outside markets. It will hurt of course, but I think it would be less pain than what we faced the last time.

Chris Seveney · Answer

@Greg Scott

IMF just came out and said we would be in a global recession. I have a contact there who is in finance and agrees we are in for some pain

While we could be in a recession, it shouldn’t change your fundamentals - just make sure you factor in the additional risk