Is Another Financial Crisis on the Way?

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Is Another Financial Crisis on the Way?

Markets have staggered in recent weeks, with spooked investors selling over mixed messages coming from the White House concerning the status of trade negotiations with China and growing fears of a global economic slowdown. With some fearing the next US recession will be ‘much worse’ than the last.

Former Federal Reserve chairman, Alan Greenspan, who famously warned more than two decades ago about “irrational exuberance” in the stock market doesn’t see equity prices going any higher than they are now.

He added that markets could still go up further — but warned investors that the correction would be painful: “At the end of that run, run for cover.”

The Federal Reserve’s interest-rate is expected to raise rates for the fourth time this year — though investors will also be combing for clues on their plans for 2019. Earlier this month, the S&P 500 closed the trading day at its lowest level since October 2017, while the Dow Jones Industrial Average plummeted more than 600 points at one point in the day.

President Donald Trump has in recent weeks taken repeated aim at current Fed chairman Jerome Powell, a former investment banker appointed last year by Trump himself. The President, a close market-watcher who has staked his presidency on the state of the economy, has accused Powell of trying to undercut him politically by slowing the economy down; calling the Fed “out of control” and suggesting Powell seemed to enjoy raising rates.

But Greenspan, who was first appointed to the Fed by President Ronald Reagan and became the longest-serving chairman, remaining in his role into the George W. Bush administration, said a key driving factor in the market’s volatility has been the “pronounced rise in real long-term interest rates.”

Meanwhile, Euro Pacific Capital CEO Peter Schiff recently told
FOX Business that investors are too complacent and instead should be fearing a looming recession that will hit the U.S. economy.

“There is going to be another financial crisis. The next recessions is going to be much worse than the last one,” he said during an interview on “Countdown to the Closing Bell.”

Schiff, a staunch critic of the Federal Open Market Committee, said the Fed will return to a zero interest rate policy, a move he describes as over extended and never should have taken place.

“The minute [the Fed] did that, they doomed the economy and now we’re going to have to reap the whirlwind of what they sow,” he said before adding that taking the fed funds rate to zero will not prevent a recession and will raise inflation expectations.

The central bank’s benchmark federal funds rate influences interest rates across the economy, including the prime rate, which is used by banks to set rates for credit cards and other methods of borrowing.

If you’re alarmed by the recent stock market changes and unsure where to turn to next, contact a retirement income specialist at CKS Summit Group.

We design plans which are specifically structured to limit downside stock market risk. This allows us to protect our client’s assets while providing them with strategies for achieving effective tax reduction and inflation protection. We look forward to speaking with you soon.