Are We Going to See Another Financial Crisis in the Coming Years?

It has been a decade since the last major financial crisis swept across the world, ruining economies and forcing major (yet necessary) changes in the global financial system. It is fair to say that many of the countries which were struck down by this pandemic have not yet recovered fully, yet we could be on the brink of another financial meltdown according to the IMF.

This would serve to cripple debt-stricken countries further, and could have disastrous social, economic and political consequences. As such, here are some considerations about whether we might be about to see another crash.

Brexit

With the UK set to leave the EU in March 2019 (although it may well happen at a later date), a spanner has been thrown into the works of European trade and economics, and no one truly knows what the overall consequences of Brexit may be.

The Governor of the Bank of England has said that failing to secure a deal with the EU could lead to a financial crisis as bad as the one which occurred in 2008. This would send shockwaves through not only the UK economy for years to come but also European economies too.

What Does the IMF Say?

The last financial crisis happened largely as a result of a lack of regulation and caution in the financial/banking sectors. Whilst regulations have now been introduced, the IMF has warned that governments have failed to push through all the reforms needed to protect the world from another financial crash.

Global debt has shot up in the years following the financial crisis, reaching $233 trillion in the third quarter of 2017. This should be enough to warn the world of how precarious the global economy now is, teetering on the edge of yet another collapse should governments continue to shirk their responsibilities.

Investment

One of the keys to achieving a healthy, functioning and safe global economy is to have plenty of investment in its most productive areas. However, it has been well documented that many of wealthiest individuals and organisations are hoarding their wealth rather than investing it, meaning that the world is suffering from a lack of financial stimulation.

Large investment firms like Wellington Management may well be an important player in helping the boost investment in different economies around the world, but more willingness to invest is needed from the financial/wealthy elite to truly get the wheels of the global economy turning once again.

Nothing is Certain

With that being said, it is worth noting that nothing is set in stone, and there are too many variables to accurately predict whether a crash will happen. The world has been slow to recover since 2008, but progress is being made, and the modern world has woken up to the dangers of complacency.

It may well be up to world leaders and the financial elite to help ensure that the current risks facing the global economy are safely navigated, so much rests on the likes of political election results and the competency of leaders around the world.

It is fair to say that the chances of another fatal financial crash happening are too high, and more action is needed to prevent it. The rising debt levels must be tackled, as they make the global economy more prone to a huge setback, especially if interest rates start to rise.

Governments also need to take financial regulation extremely seriously, and put all necessary measures in place to protect both the global economy as well as the wellbeing of their citizens. If this is achieved, then the chances of another crash will be lessened, although the global financial system still faces an uncertain future.

How Has Inflation Affected Pension Funds?

Inflation refers to the way goods and services increase in price over time, and it is often compared to wage growth to see how much richer or poorer the population is becoming. An increase in inflation and stagnation in wage growth lead to less disposable income for most, but inflation can also affect pension funds too.

Given that pensions are such a crucial preparation for retirement, it is worth looking at how they can be affected by changes in the rate of inflation, so here are some points worth considering.

Pension deficit

It is worth noting that if you have a final salary pension, it is supposed to increase in value in line with inflation, and this means a higher value is placed on defined benefit liabilities. There is already a considerable pension deficit which is predicted to grow further as inflation rises.

For employers, this either means that they will have to pay more into the pension schemes of their employees, or that they will simply deem their current pensions schemes to be unaffordable and offer a different, less generous one instead. Ultimately, continued rises in inflation along with low-interest rates could spell bad news for pensions.

How does the future look if inflation rises again?

Many workplace pensions have been in a precarious position for some time now, mainly as a result of the current economic conditions. The collapse of Carillion (a company with a large pension deficit) earlier this year highlighted some of the potential problems which can arise from companies having large pension deficits.

With many pensions at risk, The PPF (Pension Protection Fund) has had to step in to ensure that Carillion’s workers still have a pension when they retire. Similar events could well see hard-earned pensions put at risk and rising inflation could exacerbate the problem for companies that are already struggling financially.

Solutions

With rises in inflation potentially threatening the stability and existence of current pension schemes as we know them, effective solutions are needed to ensure that people can afford to sustain themselves in retirement (especially with an ageing population).

One solution could be to pool resources together into ‘super-funds’, which would allow for greater investment opportunities and potentially mitigate the risk of current pension schemes collapsing. If one thing is for certain though, it is that pension schemes will have to change in order to keep up with the changing economic climate.

How to protect individual pensions?

There are a few different measures which can be taken in order for individuals to protect their pensions. First, it may well be worth exploring investment opportunities and putting some money aside for regular investments in the likes of stocks and shares each month. Over a long period of time, this can act as a safeguard in case a pension scheme does collapse (although investments aren’t guaranteed to make a profit).

It may also be worth seeking the advice of specialist pension/investment firms like Bestinvest as they can provide sound advice as to the best course of action for individuals to take when managing their pension.

Inflation Forecasts

It is clear that the future of pensions could rest on inflation figures for the coming years. Luckily, the future looks fairly bright, with inflation predicted to fall from an average of 2.5% in 2018 to 2.1% in 2019. This trend looks set to continue for the next five years, which could help pension funds to recover.

As for the long-term future, much will depend on how the economy performs, especially with events like Brexit on the horizon. With that being said, those paying into a pension scheme may, for now, breathe a sigh of relief, as inflation figures look to be more forgiving.

Inflation has exacerbated the problems pension schemes have been facing and pensions still face a rocky road ahead, despite positive predictions for the coming years. Those with defined benefits pension schemes would do well to keep an eye on any developments to navigate potential future risks.

How will U.S. Sanction on Iran Impact on the Global Markets?

While there are many words that may be used to describe Donald Trump’s tenure as U.S. President, ‘dull’ is certainly not one of them. A list of his recent endeavors definitely makes for interest reading, from initiating a trade war with China to withdrawing from the controversial Iran Nuclear Deal struck by his predecessor Barack Obama back in 2015.

Essentially, this deal compelled the Iranian government to limit its nuclear ambitions, in exchange for the removal of the economic sanctions that had previously been improved on the international stage.

In this article below, we’ll explore the aftermath of Donald Trump’s decision to withdraw from the agreement and reimpose sanctions, while asking how this is impacting on the global financial markets.

The Iran Deal – What we Know so Far

In truth, Trump has been critical of the Iran Nuclear Deal ever since his 2016 election campaign, claiming that the nation is continuing to build a nuclear program despite providing no evidence to support this assertion.

He has remained on the attack throughout his tempestuous Presidency, so it came as no surprise when he officially withdrew from the agreement earlier this month. At the same time, Trump pledge to reimpose previously lifted sanctions on the Iranian economy, which will be rolled out in line with 90 and 180-day wind-down periods.

In doing so, of course, he has broken cover from his European allies, many of whom have been critical of the move (particularly in the current geopolitical climate). In fact, the leaders of the other five nations that brokered the original agreement back in 2015 expressed their disappointment at the decision, including French President Emmanuel Macron and Theresa May.

Unsurprisingly, Russia also expressed their dismay at the decision, although deputy Russian ambassador Dmitry Polyansky confirmed that his political colleagues were less than surprised.

There is a wider issue developing, however, with the U.S. also pledging to sanction any nations that refuse to decrease or cease their trade with Iran after the final wind-down period. The EU is taking drastic steps to negate this issue, by reviving legislation that will enable European companies to continue their current volume of trade with Iran while remaining immune to American sanctions.

This so-called “blocking statute” will elevate tensions between the U.S. and the EU, and there’s no doubt that this could place a huge strain on the global economy and financial markets.


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How will These Developments Impact on the Financial Markets?

For now, of course, the markets have responded relatively well to the withdrawal of the U.S. from the Iran deal and their supposed trade war with China, thanks to a combination of deterministic trader outlooks and the fact that so much of Trump’s administration consists of smoke and mirrors.

In fact, stock and bond markets have both enjoyed gains since the announcement, while oil has experienced two significant price hikes as a result of Trump’s anti-Iran rhetoric.

Premium crude prices soared by $1.24 to $70.15 per barrel when Trump initially discussed the withdrawal back in March, while confirmation of the decision in May helped Brent oil to achieve a four-year high of $80 per barrel. These hikes have been largely inspired by the fact that the reintroduction of sanctions will reduce Iran’s oil trade, diminishing the global supply and placing a greater emphasis on demand.

While this is great news for investors and day traders with access to online trading platforms, the climate could change quickly if the EU does indeed to undermine the U.S. and negate sanctions. The US currently does have a financial connection to Iran and Europe may be worried that an escalation of the conflict can slow down its economy.

But after all, Trump is not a man who responds well to any kind of public challenge, and this could well lead to an economic impasse that has a more damaging impact on the global economy.