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The United Kingdom, Japan, and the United States may face a financial crisis and a surge in government debt in the coming three years, experts warned.
Emerging markets are increasingly susceptible to financial crises. Issues with the trade balance, budget deficit, and high public debt are three main problems that cause considerable financial hardship in such countries. However, emerging markets are not the only economies facing the risk of a financial disaster. Developed countries are also not immune to such woes.
The UK economy is balancing on the brink of a crisis. In Japan, the situation is also quite difficult. Its central bank buys unlimited amounts of government bonds and makes forex interventions to keep the yen afloat. Meanwhile, Japan’s public debt may become uncontrollable in case of hiking rates. At the same time, a delay in tightening may spark off an inflationary crisis and cause a devaluation of the national currency.
When it comes to the United States, the country is also facing numerous risks. Thus, despite the economy’s resilience, the enormous government debt is giving serious cause for concern to investors. Analysts even compare the massive US public debt with a financial bubble.
If the budget deficit in the United States keeps rising, risks of the greenback’s devaluation in the international market will mount. In this light, the Federal Reserve may face the need to become the main buyer of government debt, as happened in Japan. Although this scenario is highly unlikely, it should not be completely ruled out.
The current fiat system suggests the possibility of a crisis if a county faces a budget deficit. This is when inflation becomes useful to some extent as it helps control the national debt. However, when economic issues and debt obligations pile up, it becomes a burden. There arises the possibility of the so-called “currency storm,” which may hit most of the financial systems.
Published 04 December 2022
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