Is this “irrational exuberance”, in Alan Greenspan’s phrase, “mania” in plainer English? Optimists (including some at Goldman Sachs) say it is “rational” and “safe”, thanks to rising asset prices and very low interest rates. Then in the past year to March 2021 (even after Archegos crash) it almost doubled to reach $820 b illion. Just before the 2008 financial crash, it peaked at $400 billion. By a year ago, April 2020, it reached $480 billion. Wall St margin debt exemplifies the bigger picture. Brokers lend margin debt to “investors” for them to play financial assets. (One million seconds equals 11 days one billion seconds, 32 years one trillion seconds, 32,000 years.) The Institute for International Finance (a trade body for global banks) estimates that global debt hit a new record of $281 trillion in 2020, with the public spending on the Covid pandemic contributing “only” $24 trillion to that figure. This increase of almost 40 percentage points in only two years is super-fast compared to the increase from 2013 to 2019 of only 20 percentage points, from 310% in 2013 to 320% in 2019. Global equity market capitalisation as a percentage of global GDP shot up from 320% at the start of 2019 to 357% by the end of 2020. Now, many retail investors – who during the Covid pandemic have been able to work from home without significant loss of income but have been limited in their normal spending - are pouring into popular stocks, sending share prices of even unprofitable companies soaring like fourth-of-July skyrockets. So in 13 years the bottom half lost 0.3% from 2.1% while the top 1% gained 1.3% of total wealth on top of 29.7% and boosted their savings ready to invest in stocks and businesses and houses, art works, yachts and sports teams. At the start of 2020, the figures were 1.8% and 31.0%. In the US and Europe, the wealthiest 1 % recovered pre-crisis wealth levels within a few years, while it took much longer – around 2017 – for the bottom half of the wealth distribution in the west to regain pre-crisis wealth levels. The wealth distribution was very polarized before the NAFC, even more polarized by 2020.Īt the start of 2007 the bottom half of the US wealth distribution held 2.1% of the nation’s wealth, the top 1% 29.7%. Recovery from the North Atlantic Financial Crisis (NAFC) of 2007-09 – which Grantham describes as “the long, long bull market” – was distinctly K-shaped. Featuring extreme overvaluation, explosive price increases, frenzied issuance and hysterically speculative investment behaviour, I believe this event will be recorded as one of the great bubbles of financial history, right along with the South Sea bubble, 19.” Jeremy Grantham, co-founder of Boston-based fund manager GMO, says: “ The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble. What is the probability of a big financial crash and recession in the US and across western financial markets – e.g. before end of 2024? Professor of Political Economy and Development in the Department of International Development Robert Wade analyses past crises and current trends to consider this question.
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