IGTA Journal - Autumn 2017

again trying to play a key role in oiling the cogs of the capitalist system, but also acting as watchdog and guardian of the temple. The financial system looks more resilient Although we may reasonably think that the financial system is more resilient than it was before the last crisis, the fact remains that the firefighters are still on hand to fight the fire, in case it should reignite. We would do well to remember the words of Janet Yellen who, in substance, said: "I hope – and I think – that there will be no further (major) financial crises in our lifetimes" (during a speech to the British Academy). She thinks that a crisis of such a scale, greater than the 1929 crisis, is no longer possible in her lifetime. Let us hope she lives a very long time, but I would not like to be the judge of her views. But we must hope that governments and supervisors have learnt from their mistakes. We cannot readily imagine the sudden onset of another crisis. However, we need to remain vigilant. The question to ask is whether there is any risk of implosion. There is, in fact, a speculative bubble on the bonds market (rather than on the equities market, even though it is very expensive). Long-term interest rates are too low. The sudden resurgence in them, when that happens, could have significant effects. An explosion will then no longer be beyond the bounds of possibility. The interest burden of companies will then surge spectacularly. What is more, the Bank for International Settlements (BIS) has warned of the "debt trap" risk. Businesses in the USA have not de-leveraged since 2008. There are many zombie companies whose interest expense exceeds profit before financial charges and taxes. No one disputes that stock prices and PEs are very high. The ratio of prices to earnings stands at over 30 according to Robert Shiller. This ratio was higher only before 1929 and before the dot-com bubble burst in 2000. There are therefore very good reasons for being worried. China is another risk. A landing of one sort or another is on the cards, and there is nothing to say it will be a soft landing. China is thought to be vulnerable while at the same time being capable of affecting the rest of the world. There is a great and worrying over-dependence on the country. Then comes "shadow banking", with little or no regulation, which includes hedge funds, private equity funds, investment funds, crowdfunding and others. The summer 2007 crisis started with liquidity problems in three money market funds. Today, the finger is being pointed at the extraordinary expansion of IGTA eJournal | Autumn 2017 | 41