The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.
Banking

Conclusion: The ultimate bubble?

Is the post-Goldilocks crash inevitable? Charles Dumas looks at an alternative scenario, where the bubble refuses to burst.

World Economic Forum special report: Contents


If the savings-glut chickens are finally coming home to roost, why no market crash? Some possibilities:

  • The slowdown is not a crash – non-housing US demand is only likely to give way gradually, probably under Fed pressure;

  • And the Eurasian savings glut is growing;

  • Whatever central banks may do, the two preceding points mean bond yields are being driven down;

  • Hedge funds and private equity have grown massively on the basis of leveraged booms – they are not about to roll over and play dead.

When would we admit we were wrong? If US GDP growth is at 3% (or more) from 2006 Q4 to 2008 Q4 and inflation eases back on a core basis to 2% during 2008, we would be wrong. Bonds would love it. So would stocks. With the savings glut as the base-load of liquidity and the leverage of the financial industry in full swing, stocks would enjoy an ultimate boom, as would high-end plays like art and London real estate.

A key issue is business behaviour, given the strength of profits and balance sheets. At the moment, while bank lending to US households is growing at about 5%, business loans (including all primary mortgages) are growing at 15%.


You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree