Another Financial Crisis ‘Around The Corner’

Mark Mobius, executive chairman of Templeton Asset Management’s emerging markets group, said another financial crisis is inevitable because the causes of the previous one haven’t been resolved, according to Bloomberg, 30 May 2011

In 2006, Mobius was named one of the “Top 100 Most Powerful and Influential People,” by Asiamoney, which stated that he “boasts one of the highest profiles of any investor in the region and is regarded by many in the financial industry as one of the most successful emerging markets investors over the last 20 years.”

“There is definitely going to be another financial crisis around the corner because we haven’t solved any of the things that caused the previous crisis,” Mobius said at the Foreign Correspondents’ Club in Tokyo today.

“Are the derivatives regulated? No. Are you still getting growth in derivatives? Yes.”

“The total value of derivatives in the world exceeds total global gross domestic product by a factor of 10“, said Mobius, who oversees more than $50 billion. With that volume of bets in different directions, volatility and equity market crises will occur, he said.

The largest U.S. banks have grown larger since the financial crisis, and the number of “too-big-to-fail” banks will increase by 40 percent over the next 15 years.

“Are the banks bigger than they were before? They’re bigger,” Mobius said. “Too big to fail.”

Mobius pointed to the fact that derivatives are still not regulated, and their growth has risen substantially in recent years. Furthermore, policymakers have not properly addressed the “too big to fail” problem regarding the size of financial institutions- they are even bigger today than pre-crisis.

The only real solution to all our current problems is to prevent high-street banks from creating money, and for a transparent and accountable agency of the state to reclaim the responsibility for creating money for the economy.

As long as banks are able to create money, we will have financial crisis after financial crisis. Unless we change the system very radically right now, the next 20-30 years will be very miserable for everyone.

The solution is remarkably simple – so simple that most economists overlook it. We need to:

a) make it illegal for the banks to create money, and

b) give the responsibility for creating money back to the public.

Doing this – and doing it soon – is the key to escaping from this recession without further tax hikes, further redundancies, further bankruptcies, and further unnecessary misery.

In fact, the reform is so simple, so astoundingly easy to implement, that the average person in the street will not know that anything has really changed.

An Act of Parliament is required to alter the way the banking system works. The change would be implemented overnight, instantly preventing the current crisis becoming any worse, and averting the depression that would follow this recession.

High-street banks will continue business ‘as normal’ – with only a few subtle changes to the services that they provide.

It may take 5 or 10 years to untangle ourselves from the mess of debt, obligations and financial contracts that we have created over the last decade, but we will soon start to see a new era in the world economy – one of economic stability and incredible possibilities.