Problematical Aspects Of Today’s Financial System

Perhaps the key issue surrounding the U.S. and global financial system is whether the embedded risk in the system has decreased or increased, especially since the Financial Crisis.

There have been much regulation and many other financial reforms made since the Financial Crisis.  These reforms, as well as other factors such as the protracted period of (very) strong returns in many markets, as well as low risk premiums and other market characteristics seem to indicate that risk has been mitigated, perhaps to a great degree.

Many prominent officials and other prominent market participants have stated or implied that risk has been greatly reduced in the system since the Financial Crisis.  Janet Yellen has discussed the issue at various points, including “Yellen:  Banks ‘very much stronger’; another financial crisis not likely ‘in our lifetime’” (CNBC, June 27, 2017) as well as “Financial Stability a Decade after the Onset of the Crisis” (Federal Reserve, August 25, 2017).  Stanley Fischer has discussed the issue as well, including in the “An Assessment of Financial Stability in the United States.” (Federal Reserve, June 27, 2017)

However, there are many reasons to believe that these widely-held assessments are (substantially) incorrect.  The financial and economic activity that has occurred in this era has been accompanied by a wide range of risks and other problematical dynamics, many of which have been discussed on this site.  Cumulatively, the financial system is rife with vastly problematical dynamics that my analyses continues to indicate will lead to what I have previously referred to as a “Super Depression,” i.e. a severe economic depression characterized by difficult-to-solve problems.

Some of those problematical aspects I wrote of in the September 18, 2013 post titled “Has The Financial System Strengthened Since The Financial Crisis?”  Since then the issues discussed have grown in peril.

As I stated (in part) in the March 18, 2014 post titled “Was A Depression Successfully Avoided?” –

While no one likes to contemplate a future rife with economic adversity, I do believe that our current economy and financial system on an “all things considered” basis have vastly problematical working dynamics much more pernicious than those existent prior to and during The Great Depression.


The Special Note summarizes my overall thoughts about our economic situation

SPX at 2516.78 as this post is written