Will the cryptocurrency crash be the economy's next black swan? -Daniel Rodriguez Asensio

I remember that in the middle of the epidemic and at a time when the country was paralyzed, there were those who said that the exit from the crisis would be in the “V”. Spain, about 3 years after this situation, did not return to their level. GDP pre- to the crisis.

I also remember those who labeled us “right-wing doomsayers” in May 2020. We warned against the risk. inflation Although distant, it showed alarming signs in some parameters. Or when, in February 2021 we were talking about “stagflation” (economic recession and inflation), exactly what is happening right now.

So, at this point we’ve come, It is necessary to remember this article (you read) May 2021, when we warned of the high risk of financial crisis after stagflation.

Of course, no mainstream media mentioned itand those who commented on these analyzes used disqualifying words and automatically disdained the views of some analysts.

Today, a year and a half later, the international financial situation is as follows:

this European Central Bankby Luis de Guindos warned that the situation is getting worseand countries with the most debt and the lowest growth are particularly vulnerable.
increase in interest rates (in fact, they’re at their highest since 2008/2009), the financial solvency of the business sector is worsening, and warnings from regulators point in only one direction: banks higher provisions For a complex year like 2023.
there have already been cases lack of liquidity in key markets such as pension funds United Kingdom or ransom fed of the Credit Suisse.
And if the above is not enough, we live bankruptcy third largest platform cryptocurrencies around the world (FTX), while other relevant agents in the industry have to shut down their operations for 7-10 days for “maintenance work” or directly receive billions of dollars in capital injections (as with the Genesis broker) of the directory.

Are we at the door of a new financial crisis? it’s too early to tell. To this day still not not a single indicator asserting that default has increased, or that reliance on the highest-risk assets, in particular, has increased, is getting worse.

USA and Europe

Now, those who think like us multi crisis will start with countries like Spain sooner or later we will look to the past to try to find similarities.

Real stubborn in terms of financial markets: This is 2022 (first half of the year at least) was the worst, in both variable income and fixed income markets of the last decades. The numbers speak for themselves.

The figures above correspond to United States of Americaalthough a similar situation (perhaps not so obvious) occurs Europe. This is for an economy heavily affected by inflation As in the United States and since the 2008 crisis, savings have migrated from brick to stock markets. overexpansive monetary policypresupposes a loss of wealth and purchasing power that we should not ignore.

Therefore, the magnitude of the crisis in the financial markets, far beyond what we see in the early 2000s.

Cryptocurrency crash

On the other hand, cryptocurrency crash It’s going in that direction. I do not believe the magnitude of the loss is sufficient to justify a significant deterioration in the solvency of US agents. In fact, the market size of cryptocurrency exchange platforms is around $30,000 million, compared to the $24 trillion represented by the New York Stock Exchange alone. Again, can seriously affect the valuation of collateral (assets used as collateral to invest in bonds or borrow money) and hence solvency.

Therefore, when answering the question of whether we are at a new door Lehman BrothersIt is convenient to go to economic history:

The 2008 crisis did not come out of nowhere. Housing prices in 2006 reversal of downtrend. As a result of the above, the credit markets began to experience doubts. Getting a housing loan to buy a house, relatively easy for everyone in a context in which this entity grows. Anyone could take out a mortgage and sell the house with a capital gain that usually covered interest if they couldn’t afford the repayment. However, when the market turns to subprime and their associated financial products it started to get worse in terms of trust.

In the summer of 2007, a year before the bankruptcy of the French bank Lehman Brothers. BNP Paribas announced that it has stopped returns. 3 of its funds with assets backed by subprime mortgages in the United States. What happened since then is known to everyone: Market drained liquidityLehman went bankrupt and systemic risk became the biggest crisis in history.

I will give you some information: Only 10% of mortgage loans were subprime In 2007, that is, the credit quality is low. Even if the entire stock market crashes, estimated losses are like a bad day in global stock markets. Or to put it another way, the system didn’t crash because of subprime mortgages. Lack of trust and liquidity They also did their job.

The most relevant thing about a financial crisis is that it is very difficult to predict. produced by loss of trust in economic agentsand it’s definitely hard to measure. My personal opinion is a stagflation situation, excessive indebtedness, rate increase and the absence of economic growth engines can only result in a financial crisis. But it’s hard to know when and where it will explode.

Unless interest rates skyrocket in interbank markets, Confidence in the financial sector will not deteriorate. This is the real indicator that needs to be watched closely to try to predict the liquidity suffocation in the financial markets.

At this point there are two keys at the macro level: i) Know in detail what is exposure from issuers with high credit quality to cryptocurrencies; ii) watch very closely liquidity of the system through interbank credit.

What is certain is that when trust is lost, as in 2008, deterioration will be rapid and aggressive. And as the ECB rightly points out, it is the countries that owe the most, and we are the ones who owe the most. old open structural We are the most vulnerable to such a situation.

Could a situation similar (or worse) to that of 2011 have been prevented? Of course. But for this you have to Make your way to the Volckers and reagan: Budgetary stability, supply policies and fighting inflation as a macroeconomic priority. Any other way makes us vulnerable to an increasingly obvious and imminent financial crisis.

The storm is not here, but it is coming. Does this mean it will get worse? We will still see there are more and more signs Thinking so The obvious thing is that if it falls, Spain has an unrepaired roof and a few cracked houses. we will pay.