The chief economist at HSBC bank said Wednesday that the global economy is on a collision course with another recession calling it a "titanic problem."The economist, Stephen King, said in a note to investors that any number of factors could trigger the next recession four in particular. Officially, the United States' last recession ended in 2009, more than a year after the financial crisis began.
It is impossible to predict when the next could set in, but King said it will likely be in the near future began. It is impossible to predict when the next could set in, but King said it will likely be in the near future.Particularly disturbing, he said, is that anything policymakers do to fix the next recession might not work as it had in previous recoveries."The world economy is like an ocean liner without lifeboats. If another recession hits, it could be a truly titanic struggle for policymakers," he said.King illustrated four scenarios to watch out for -- any one of which could potentially trigger the next recession.The first is a rise in workers' wages. That, he said, could hurt corporate profits and reduce the amount of money businesses contribute to the U.S. gross domestic product. That might lead to lower consumer and business confidence and a collapse in stock prices.The second scenario King mentioned is non bank financial institutions, like insurance companies, running out of money and not being able to meet future obligations. This might lead to a rush to liquidate assets, causing people to sell en masse without a corresponding demand.Thirdly, the Federal Reserve may encounter forces beyond its control -- such as the collapse of the Chinese economy and devaluation of the renminbi, China's currency. Another example would be a decline in commodity prices causing collapses in emerging markets, King said.The fourth scenario calls for the Federal Reserve to raise interest rates too soon.One concern in particular, King noted, is that when the next recession hits monetary policymakers might struggle to put the global economy back on track."Whereas previous recoveries have enabled monetary and fiscal policymakers to replenish their ammunition, this recovery -- both in the U.S. and elsewhere -- has been distinguished by a persistent munitions shortage," King said. "This is a major problem."In all recessions since the 1970s, the U.S. Fed funds rate has fallen by a minimum of 5 percentage points. That kind of traditional stimulus is now completely ruled out."
It is impossible to predict when the next could set in, but King said it will likely be in the near future began. It is impossible to predict when the next could set in, but King said it will likely be in the near future.Particularly disturbing, he said, is that anything policymakers do to fix the next recession might not work as it had in previous recoveries."The world economy is like an ocean liner without lifeboats. If another recession hits, it could be a truly titanic struggle for policymakers," he said.King illustrated four scenarios to watch out for -- any one of which could potentially trigger the next recession.The first is a rise in workers' wages. That, he said, could hurt corporate profits and reduce the amount of money businesses contribute to the U.S. gross domestic product. That might lead to lower consumer and business confidence and a collapse in stock prices.The second scenario King mentioned is non bank financial institutions, like insurance companies, running out of money and not being able to meet future obligations. This might lead to a rush to liquidate assets, causing people to sell en masse without a corresponding demand.Thirdly, the Federal Reserve may encounter forces beyond its control -- such as the collapse of the Chinese economy and devaluation of the renminbi, China's currency. Another example would be a decline in commodity prices causing collapses in emerging markets, King said.The fourth scenario calls for the Federal Reserve to raise interest rates too soon.One concern in particular, King noted, is that when the next recession hits monetary policymakers might struggle to put the global economy back on track."Whereas previous recoveries have enabled monetary and fiscal policymakers to replenish their ammunition, this recovery -- both in the U.S. and elsewhere -- has been distinguished by a persistent munitions shortage," King said. "This is a major problem."In all recessions since the 1970s, the U.S. Fed funds rate has fallen by a minimum of 5 percentage points. That kind of traditional stimulus is now completely ruled out."
