What Caused The Global Financial Crisis according to Jesse Colombo

The Global Financial Crisis according to Jesse Colombo

Jesse Colombo has been credited by the Financial Times and others for predicting the housing crash, and stock-market-crash. He is a Forbes contributor and his primary web site is TheBubbleBubble.com

1. Which FCIC View best represents the causes of the Financial Crisis?

Dissenting Views By Hennessey, Holtz-Eakin & Thomas.

2. Which narrative presented by Douglas Elliott and Martin Baily of the Brookings Institute in Telling the Narrative of the Financial Crisis: Not Just a Housing Bubble best represents the causes of the Financial Crisis?

Everyone was at fault: Wall Street, the government, and our wider society.

3. I believe the crisis is ongoing and I project the Global Financial Crisis will end in the year
2013 or beyond.

4. What were the primary causes of the Global Financial Crisis?
The Global Financial Crisis was caused by the partial popping of a truly global credit and asset bubble that inflated in large part due to the ending of the Bretton Woods Agreement in 1971, which allowed unlimited expansion of the money supply (including credit money) in the coming decades. The credit and asset bubble began to inflate (see chart) in earnest in 1982 when U.S. interest rates peaked, and their steady decline over the past three decades helped to inflate longer term, still-unpopped bubbles in U.S. equities and property prices. The economic boom of the 1980s, 1990s and early-2000s was the result of the growing credit and asset bubble, which created false prosperity throughout the world. The bubbles began to pop as the Federal Reserve raised interest rates from 2004 to 2007, which caused the crisis. Unfortunately, the bubbles are nowhere near fully deflated, and have actually grown larger by some measures because the Federal Reserve pursued extremely stimulative monetary policies after the crisis to reinflate the bubbles, which has led to what we know as the economic recovery, which I consider to be a "Bubblecovery" or a bubble-driven economic recovery.

5. What still should change as a result of the crisis?
My position is that society has learned little-to-nothing from the Global Financial Crisis and they still do not understand what caused it in the first place, as evidenced by the monetary policies that central banks are pursuing to create the spurious economic recovery. The only reason why we are recovering is because we are releveraging or reinflating our credit bubble (see chart) and are reinflating the same (and more) longer-term economic bubbles that attempted to pop back in 2008. There are currently many more economic bubbles that are growing inside and outside of the U.S. that are creating the illusion of economic healing, including bubbles in China, emerging markets, Canada, Australia, housing bubbles in Northern and Western Europe, Web 2.0 companies and startups, U.S. housing, U.S. equities, U.S. higher education and student loans, and U.S. healthcare. When interest rates ultimately rise again, these post-2009 economic bubbles are going to pop and cause a financial crisis that is much worse than the 2008 crisis.

Colombo refers those interested in reading more about his opinions to two of his recent Forbes columns.

Bubblecovery: Why Our Economic Recovery Is Actually An Illusion
Why Stocks Are Undoubtedly Experiencing A Massive Bubble

Compiled by Gary Karz, CFA
Host of InvestorHome

Global Financial Crisis Survey

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