Next Financial Collapse Could be Looming, Worse than Current

Americans are being lulled into a false sense of economic security through misleading economic indicators that have been pushed upward by optimistic investors - a phenomenon that has the potential to lead Americans to return to living well beyond their means, according to Edward Hadas of breakingviews.com. 

“While the economic arrows are still mostly pointing downward, markets seem to be twisting the data in a positive direction,” he writes.  “A few numbers suggest that a little bit of the exuberance of the go-go credit years could be returning.” 

One of the indicators of economic data being twisted in a positive direction is the fact that the trade deficit is once again on the rise.  As a matter of fact, the trade deficit experienced its first month-over-month rise since last July.   

According to Hadas, that rise is likely due to the fact that oil prices are beginning to climb again.  Despite the fact that demand is still down and supply is still up, crude prices have risen by over 50 percent in the last three months.  This is mainly due to investors pumping cash into the commodity.   

In addition, even banks appear to be doing well, with stocks up and confidence in them slowly returning.   

However, it is all nothing more than a façade created by investors to instill confidence in the markets and move the public away from its newfound sense of thrift, according to Hadas.   

If that occurs, it has the potential to have disastrous consequence for the American economy, effectively sweeping away all the necessary changes that have been brought about or discussed because of the financial crisis.   

“If the situation holds, the momentum to reshape the global financial system - which was strong as recently as April's G20 meeting - will dissipate,” he writes.  “The U.S. and U.K. could then go back to living well beyond their means, and the funds borrowed from their creditors could once more pump up financial markets.  Bankers might be able to persuade politicians that the calls for tougher and better regulation were overdone.” 

And that would simply lead right back to where we are today: in the midst of a severe recession as the result of a boom and bust cycle created by Wall Street investors.   

“And the next financial collapse could plausibly be worse than the one that might now be ending - hard as that may be to imagine,” Hadas concludes.  “Even if deserting creditors did not cause a dollar rout, indebted governments and stretched central banks would be unable to offer much in the way of stimulus.” 

Source CNNMoney.com:

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