Executive Intelligence Review


Sheila Bair’s Assessment of the Debt Bubble Is To Watch Out for the Short Term!

Sept. 24, 2018 (EIRNS)—U.S. economist and former Federal Deposit Insurance Corporation (FDIC) Chair Sheila Bair, interviewed in the Germany daily Die Zeit Sept. 21, said the opposite of almost all other analysts talking about the current precarious debt/market situation. Nearly all pundits are saying, “Oh, of course we look all right through 2019, but then we could have another crash like 2008.” But Bair concludes her interview, “In the long term I’m optimistic. But I’m very worried about what will happen in the short term.”

Bair’s basic point is that the economy is in a debt bubble ready to collapse under higher interest rates; and it is “absurd and insane” that bank regulation is being rolled back and capital requirements reduced by Wall Street extreme pressure on officials. She recalls that financial firms, just as in 2007-08, already don’t know or understand whether they have enough capital to withstand a crisis.

“We are in a bubble,” Bair stressed.

“That has applied for some time both to the stock and the bond and debt markets. But even on the real estate market there are overblown price developments. It’s always claimed that speculative bubbles are recognizable only retrospectively. I see it differently. It is difficult only to know when they burst. I can only strongly urge that the Fed promptly end the cheap money phase which has now gone on much too long.”

As in at least one earlier interview this year, the former FDIC chair praised China, where she has consulted financial firms, and to which fingers are pointed for the large amount of credit and debt it has generated. “The Chinese are constantly confronting the problem,” she told Die Zeit.

“We, by contrast, are not so honest about our economy being encumbered with high levels of debt. The biggest problem in China is the overindebted state firms; however, there Beijing can decide when and how it will allow failures.”

Total debt-to-GDP is, in any case, considerably higher in the United States than in China, though this is seldom acknowledged.