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Warnings of Financial Crash in 2018

Jan. 1, 2018 (EIRNS)—Morgan Stanley’s research department anticipated a crash of the corporate debt bubble in 2018, in an end-of-year research note circulated Dec. 30. The NASDAQ website summarized the Morgan Stanley report as follows:

"The research team [of Morgan Stanley] now takes a very gloomy view of the credit markets. The bank says that corporations have issued much too much debt, especially because they used the cash to buy back shares; and with rates and yields likely to rise, this could put many in trouble. Apple is one of the companies cited as at-risk. ‘Markets expect a seamless unwind of quantitative easing. We don’t.’ MS expects investment-grade markets to be hit just as hard as junk debt markets."

Banking historian and former investment banker Nomi Prins gave the warning in more detail in Truthdig on Dec. 29: "By Oct. 1, U.S. investment-grade corporate debt issuance had already surpassed $1 trillion—beating 2016’s pace by three weeks. The amount of speculative-grade (or junkier) corporate debt issued during the first three quarters of 2017 was 17% higher than over the same period in 2016. Altogether, that means that U.S. corporate issuance is set for another record year, as well as the sixth consecutive year of increased corporate debt issuance.

"As history has shown us, all bubbles pop.... Corporate debt of nonfinancial U.S. companies as a percentage of GDP has surged before each of the last three recessions. This year, it reached 2007 pre-crisis levels.... And whereas, in the past, companies used some of their debt to invest in real growth, this time corporate investment has remained relatively low. Instead, companies have been on a spree of buying their own stock, establishing a return to 2007-level stock buybacks.

"Financially speaking, 2018 will be a precarious year of more bubbles inflated by cheap money, followed by a leakage that will begin with the bond or debt markets.... If there is another financial crisis in 2018, it will be worse than the last one because the system remains fundamentally unreformed, banks remain too big to fail and the Fed and other central banks continue to control the flow of funds to these banks (and through to the markets) by maintaining a cheap cost of funds."