CAPE TOWN - The first day of the annual World Economic Forum kicked off yesterday in Davos, Switzerland
A number of keynote speakers and global influencers sat to discuss whether 2018 could be the year for the next financial crisis.
In a panel discussion at WEF yesterday, chaired by Bloomberg News editor-at-large, Tom Keene, international bankers, professors and investment executives discussed 2018 and its financial prospect.
Some panelists remained skeptic about whether 2018 is on the brink of a financial crisis while others said that if a crisis were to occur, we would not be ready. “If there is another financial crisis, there isn’t really a plan of what central banks will do”, said Cadet Professor of Public Policy and Professor of Economics at Harvard University, Kenneth Rogoff.
Rogoff said that we are still coming out of the last financial crisis. He adds that a deep seismic financial crisis like we experienced has a long lifespan. It takes 8 to 10 years to recover which is not unusual.
Asked whether there is going to be another financial crisis, Rogoff declined to comment, sarcastically saying that he would lose sales on his book: This Time is Different: Eight Centuries of Financial Folly.
He said he is, however “kind of optimistic going forward” about where the world economy is at the moment.
In the current environment, interest rates are low.
Despite this, Co-Founder and Co-Executive Chairman of The Carlyle Group, David Rubenstein says that usually when the market seems stable, people become complacent.
This is when a financial crisis hits when people are not aware.
What we can learn from previous crises is that it is not all bad, says Rubenstein.
Debt can be bought back at a lower price and this is usually where entities regain their mobility.
Chief Executive of M&G Investments, Anne Richards, similarly shared her insight and said that what is a major concern is that there is not even a plan A... if we were to encounter a financial crisis.
“We have far fewer tools to deal with any event that happens”, said Richards.
Meanwhile, Group Chief Executive Officer at Barclays, Jes Staley, remained optimistic about 2018’s economic outlook.
“Given asset valuations, given we have 4% global economic growth, we are in a pretty good place right now, economically”, said Staley.
Staley added that if we were to enter a financial crisis, the capital markets would inevitably be tested. However, this does not guarantee a market collapse.
He, however, advised that given the current standard of operations, regulators are more involved.
Given this, banks should work collaboratively with regulators and asset managers to avoid the next crisis. Richards and Rubenstein then argued about the role that geopolitics plays in a financial crisis.
Richards contends that geopolitics are largely unforeseen and can be anything from a terrorist attack, a war or natural disaster. However, this will not directly influence people’s behaviour. Something has to directly influence people’s spending habits, said Richards.
She then added that people should look out for systemic problems.
For instance, what will happen if the world is disconnected and unable to access Wi-Fi and Cloud systems. This will create complete pandemonium as technology influences our spending and investing habits, said Richards
On China’s impact in the possible financial crisis, Vice-Chairman of China Securities Regulatory Commission, Fang Xinghai said that because China’s economy is large, the rest of the world is directly affected.
However, China acts quick to crises and therefore an economic collapse is highly unlikely to occur. Fang then advised that people should be alert and aware of asset bubbles.
“Every crisis is associated with an asset bubble”, said Fang.
Fang added that China is aware of possible dangers which is why their central bank ordered the closure of trading bitcoin in China.
“Bitcoin still has to be proven”, said Fang.
Rogoff then says that he expects US inflation to exceed 2% this year. Despite the expected inflation hike, Rogoff said that he does not think an equity market collapse is nearly as bad as a debt crisis.
At the forum today, chaired by Editor-in-Chief of daily Swedish newspaper, Dagens Nyheter, Peter Wolodarski led a discussion with Lord Bagri Professor of Economics at London Business School, Hélène Rey and President and Chief Executive Officer of The Depository Trust & Clearing Corporation (DTCC), Michael Bodson.
"We are still effectively recovering from the last crisis", said Rey.
She said that the risks are still evident from the previous crisis.
"Part of legacy of previous crisis both public and private debt which depends on each country but still remains a high risk", said Rey.
Bodson disagreed and said that "debt is a concern but the economy is continuing to expand".
- BUSINESS REPORT ONLINE