Impending warning about a financial crash – Crisis experts alert a burst of US debt bubble

It has already been a decade (2007 – 2017) since the grave financial crisis brought down the entire world to its knees, experts believe that the US economy could again go through a similar phase by the end of 2017. The beginning of the sub-prime housing crash which destroyed the financial markets and bans throughout the world is been considered as similar to 9th August 2007. It was on this day that BNP Paribas Investment Partners, a banking giant announced that it eliminated the valuation of 3 of its vital funds which were badly exposed to the housing market due to the sudden liquidity evaporation in different segments of the US economy.

The successive collapse in the house prices of America finally triggered the worst economic recession post the Great Depression with the whole countries and banks requiring sudden bail-outs. So, as per the experts, it is indeed worrying enough but the housing market and the US economy look very much similar to what it was in 2007. Just as it was in 2007, the rate of unemployment is also at 4$ and the central bank of America is also raising rates at present.

A look at the market statistics

After several years of growth, the prices of homes are at their record high levels. Meanwhile, stock markets hit their highest values while the prices of debts, corporate bonds have even increased crucially. The house prices aren’t out of line with the income among households which also implies that a housing crash is pretty less likely, as per experts. Though the Case-Shiller national home index is higher now than what it was at its pre-crisis peak, ratios of prices of homes to the disposable income are in line with the average since what it was during 1975.

What about mortgage rates?

Comparatively, mortgage rates are pretty lower and mortgage debt is even smaller as per the share of disposable income. Adjustable-rate mortgages have become less common and the banks have also tightened their criteria for lending. Nevertheless, it is still being feared that the debt bubbles in few areas could burst thereby triggering yet another crash like it did in 2007.

Is there a rise in debt as per earnings?

Reports reveal that in Britain, the total amount of debt that is taken by households is increasing at a faster pace as compared to the earnings. It seems that the Bank of England is growing worried as it recently introduced new lender rules and also rules for borrowers to reduce risks. Nevertheless, their former Chancellor Alistair Darling alerted that consumer debt is a new concern that needs to be addressed soon. Another big worry is China but its growth of economy helped in pulling the world totally out of a financial crisis.

It is being feared that a sudden slowdown could sink the global economy and financial markets. Meanwhile, debt on balance sheets of central banks in different developed countries has increased and it is not clear how many institutions will unwind their positions.