As Winston Churchill said, "Those who fail to learn from history are condemned to repeat it." When it comes to recessions and financial crisis, the lessons from the most recent 2008 financial crisis should be analyzed to determine if we are on the verge of another similar event in 2019. While there are plenty of similarities, one huge difference is the fact that there were no alternative monetary systems available back then. Since 2009, there are alternatives such as Bitcoin and cryptocurrencies.
The systemic problems that caused the last crisis have never been remedied. The FED bailed out the banks and took all the toxic debt on to their balance sheets to treat the symptoms rather than the disease, leaving the taxpayer's on the hook for the excesses of "casino capitalism."
The derivatives market and hedge funds are still unregulated by the SEC. The ICO market on the other hand has been regulated almost out of existence by the SEC. This heavy handed approach of calling virtually every crypto a "security" has slowed the growth of the crypto space, but it hasn't succeeded in stopping its development.
While it is counter-intuitive to want to see crypto become a more regulated asset for it to succeed, it needs to be in order for the institutional investors to be comfortable entering the space. Bitcoin emerged in response to the financial crisis and offered an alternative that eliminated the "trusted" third party middle man in transactions which could now be done peer to peer in a permission-less decentralized fashion
The solution of monetizing the debt and extending and pretending, or "kicking the can down the road" to prevent a more severe collapse has left us with a looming day of reckoning that may not be able to be put off any longer.
The moral hazard created by the FED printing money out of thin air to lend to the banks at 0% interest in order to stimulate the system, has resulted in a system that no longer seems to be able to function without the constant in flow of cash from the FED to stay afloat. It's capitalism for the taxpayers when the market is doing well, and socialism for Wall Street banks when it is collapsing.
The metrics now are far worse than they were a decade ago. The overhanging debt in the US is $23 trillion dollars now. Back in 2007 - 2008 it was half that figure. Meanwhile, the interest rate on fed funds is currently 2.27%, or less than half what it was just prior to the last crisis in 2007 (5.26%). This means the FED has half as many bullets in its interest rate cutting gun than it had in 2008. Since the FED has recently raised rates in December 2018, the stock market has become more volatile than the cryptocurrency market. Soon the interest on the debt is going to exceed the bloated military budget of the US.
One indicator of trouble ahead is the "durable goods orders." On April 26, 2007, these were down year over year by 2 percent and they had been softening since April 2006. In the last crisis the Economists ignored this critical indicator which was telling them that companies were not confident in the economy and thus were not buying big ticket items. This leads to a drop in GDP growth and declining production. Durable goods orders in 2018 have dropped again except for military aircraft.
Other indicators include the real estate market. In 2007-2008, the crash in real estate prices led to the financial crisis as most big banks had huge exposure to these toxic mortgage backed securities (MBS) that Wall Street had pumped out in the years prior to the crisis. Once again real estate has dropped 7.7% year over year in 2018. Of course there are not huge amounts of subprime MBS's defaulting now, but there are other systemic problems in the real estate market especially the lack of first time home buyers, thanks to the rise in interest rates and lack of good paying jobs for college graduates. Many of whom are forced to move back in with their parents after college, and are sitting on $1.5 trillion in student loan debt with a 11% default rate expected to grow to 43% by 2023.
Oil prices plunged in the last crisis and have plunged again in 2018. Gold prices soared to $900 an oz in the last crisis as investors sought alternative assets to preserve their wealth as the stock market collapsed. Gold is rising again in 2018. The most undervalued asset which has already been through its own crash in 2018 and stands ready to return to a bull market is cryptocurrencies. Bitcoin is a decade old now and in fact today is the 1 year anniversary of the "bubble" having popped on 1/7/18. The crypto market goes in cycles just like other markets.
Within the next few months with the introduction of the Bakkt exchange by ICE, the Nasdaq crypto exchange and potentially the Van Eck ETF being approved the mainstream adoption of crypto by institutional investors could send the crypto market soaring once again. Investors in the crashing stock market will be looking to cut their losses and realize gains elsewhere. They will be looking at alternative assets like gold/silver and cryptocurrencies. Once the crypto bull market trend of 2019 kicks in, the masses will pile in once again. The wise investors who have learned the lesson of history are buying crypto now since it is at the point of peak opportunity. Those who are oblivious to the lessons of history will likely buy in when the crypto market is at its peak, which is the point of maximum risk.
While the same players responsible for the last crisis are going to be responsible for the next crisis, Bitcoin is going to be the asset class that sees the most success, despite their constant warnings that it is a FAD or a fairy tale. They fear having to deal with an alternative to their monopoly on the financial system that is not tied to any nation and is beyond their control. The people will take back control over their money as the FED loses control of their manipulated system. The next crisis will be a currency crisis. We see it already in the emerging markets of Argentina, Venezuela, Turkey and Iran, all of whom have taken a big interest in crypto as an alternative to their hyper inflating Fiat currencies.