Bank of England Could ‘Trigger the Next Financial Crisis’
It’s not some wayward doom-and-gloomer who said it, but the Economic Research arm of Natixis, the investment bank of France’s second largest megabank, Groupe BPCE.
The analysis was talking about the Bank of England. But the Fed and other central banks, with their ingenious monetary policies, have created similar scenarios where only the nuances are different. And now these “triggers for the next Financial Crisis” are cluttering the future, enough to where an investment bank, an entity that has tremendously benefited from these monetary policies, is beginning to fret.
“We are concerned about the UK economy,” Natixis starts out, though the UK economy is currently the shining model in Europe, where a tsunami of money and government coddling of banks appear to have solved all problems.
The analysis goes through its logic step by relentless step. Since the Financial Crisis and the deep recession it brought to the UK, growth has largely been powered by the inflation of asset prices.
UK household demand “reacts strongly to changes in property wealth,” the report said. So soaring home prices entail a sharp rise in consumption, a phenomenon that appeared in 2003, then 2006, and most recently in 2013. This is followed by a tidal wave of home buying, which started in 2004 (three years before the Financial Crisis) and once again in 2013. It’s followed by a similar tidal wave of housing starts. All of which give a strong boost to economic growth.
That “wealth effect” for property-owning households is paralleled by similar effects on the corporate side. Soaring commercial real estate prices and skyrocketing share prices “helped kick-start corporate investment” from 2005 to 2008 – just before the Financial Crisis – and once again after 2010, when commercial property prices and share prices were re-soaring. Natixis:
It is clear that the expansionary monetary policy pushed up asset prices from 2002 to 2007, from 2010 and especially 2013.
So what’s the outlook? More of the same.
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