Disturbing forecasts of another financial crisis are on the rise worldwide, and some analysts have even claimed that it has already begun. We at FX News decided to take a look at these 2019 rumors to see if they have merit. We’ll also detail what you can do as a trader to protect yourself and even pursue profit from trading in a volatile market. This article explores rising debts on a global scale, banking controversies, and other so-called signs of a coming crunch.
Loans are a very significant product for a bank. Big banks have other sources of revenue such as foreign exchange trading, but loans are a very lucrative service, and banks go to great effort to make attractive offers. When anyone says that debts are on the rise, they also mean loans are on the rise.
Subprime loans for cars and properties are already at 2008 levels, and credit card debt in the US blasted past $40 billion last year. Corporate debt is also on the rise due to secured lending that is backed by overvalued assets—one of the infamous bank practices that ruined the world economy 11 years ago. Moreover, student loans are also out of control. It’s estimated that in the US alone, student debt has risen to over $1.3 trillion—6 times higher than 2007 levels.
One of US President Trump’s first acts after relieving former President Obama was to increase capital requirements for banks from $50 billion up to $250 billion. Now, high street banks are asking for an easing of those restrictions, and financial analysts are getting nervous once again. Any attempt to reduce the requisite capital could be a recipe for global disaster. If the markets were to take a dive, the banks simply wouldn’t have the funds to absorb the losses. 2008 all over again!
Just recently, the US Federal Reserve hiked interest rates from 2%-2.25%, the highest level we’ve seen since 2008. Rising rates are a strong indicator of a financial crisis, and many other countries are already considering rate hikes. If you see that bank rates are increasing on both sides of the pond, then trouble is brewing.
Nowadays, every business model requires growth. Companies set lofty goals, reach them, then raise the bar—over and over again. Nations have a similar strategy for their GDP (Gross Domestic Product). Like a constantly growing bubble, there comes a time when it must burst. When it does, the media call it a financial crisis.
This is a fundamental issue with our current ‘free market’ that didn’t get restructured after the last crisis. Stops were put in place, but this is effectively just a band-aid on a broken bone. In other words, recessions are a part of the ebb and flow of the world economy that cannot be avoided. Our only job is to prepare for the economic winter.
The first thing to do is relax. Getting stressed won’t help. If you have a mortgage based on a foreign currency, then you might start to see your monthly payments rise. For example, let’s say you have a Swiss franc loan, but your income is in euros. If the euro loses market value, then your mortgage payments will likely rise.
During the 2007/2008 recession, people saw their loan repayments triple in a matter of months, but traders had the opportunity to offset this financial burden by trading forex. Setting a ‘Sell’ order for the currency pair EURCHF (euro vs Swiss franc) meant that as mortgage repayments increased, trading profits increased too. If you currently live in a country that already has an unstable economy, trading forex could be a very powerful tool for hedging losses caused by huge economic shifts.
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