The next economic crash may be the last warns trade economists at the United Nations cautioning that the next global recession could quickly get out of control plunging the world into an economic depression and resulting in a post-apocalyptic failing of major governments as the world’s bond market teeters on the precipice of a full-on meltdown.
"As capital begins to flow out, there is now a real danger of entering a third phase of the financial crisis which began in the United States housing market in late 2007 before spreading to the European sovereign bond market," said the UN Conference on Trade and Development (UNCTAD).
In the wake of the 2008 economic collapse, countries around the world forced their economies afloat by flooding the market with cheap money by artificially lowering interest rates to near zero – an unprecedented rate point at which benchmark rates have remained for nearly 8 years now.
"Alarm bells have been ringing over the explosion of corporate debt levels in emerging economies, which now exceed $25 trillion. Damaging deflationary spirals cannot be ruled out," the report remarks. In the event of an economic slowdown, the experts caution, the massive debts held by bondholders may not be redeemed forcing whole economies into default.
Large emerging economies including Brazil, Russia and South Africa may be the worst hit in the event of another economic slowdown as they are the most likely to face a credit crunch from lenders who are unwilling to renew their debt or buy more pushing borrowing costs to unprecedented levels.
Nonetheless, major Western economies may also feel the squeeze in the event that international credit markets freeze up due to massive issuances of debt. In the United States the national debt is quickly nearing $20 trillion with the danger that interest payments may soon overwhelm the budget – particularly if credit is limited forcing interest rates on repayment upwards.
The pressure would most likely be felt most immediately on companies in emerging market economies who are forced to borrow money in a depressed financial sector with risk appetites festering but the decrease in national growth in countries around the world could quickly spread the contagion to the nation-state level.