Features

Seth Klarman: where the next crisis lies

Baupost CEO Seth Klarman sees the seeds of the next financial crisis in sovereign debt.

932-Klarman-634

Seth Klarman, chief executive, Baupost Group

"The seeds of the next major financial crisis (or the one after that) may well be found in today's sovereign debt levels." In his latest letter to investors in his fund, billionaire value investor Seth Klarman, 61, warns that the increasing ratio of government debt to GDP across developed countries which has only deteriorated since the 2008 financial crisis is unsustainable, even for the US, reportsThe New York Times.

"There is no way to know how much debt is too much, but America will inevitably reach an inflection point whereupon a suddenly more sceptical debt market will refuse to continue to lend to us at rates we can afford.By the time such a crisis hits, it will likely be too late to get our house in order."

Klarman, a former donor to the Republican party who turned Democrat after the election of Donald Trump, also warns that investors are too complacent about political turmoil. "Social frictions remain a challenge for democracies around the world, and we wonder when investors might take more notice of this. Social cohesion is essential for those who have capital to invest."

He tells Evan Osnos in The New Yorker that companies need to stop taking a short-term view or they risk heavy-handed regulation by populist governments voted in by angry electorates. "It is not hard to imagine worsening social unrest among a generation that is falling behind economically and feels betrayed by a massive national debt that was incurred without any obvious benefit to them."

Most Popular

Central banks are rushing to build digital currencies. What are they, and what do they mean for you?
Bitcoin

Central banks are rushing to build digital currencies. What are they, and what do they mean for you?

As bitcoin continues to soar in value, many of the world’s central banks are looking to emulate it by issuing their own digital currencies. But centra…
8 Apr 2021
Nuclear power might never be popular – but now looks a good time to invest
Commodities

Nuclear power might never be popular – but now looks a good time to invest

Nuclear power gets a very bad press, but it is the ultimate renewable energy source. Interest in it is perking up again, says John Stepek. Which means…
9 Apr 2021
House prices: from boom to even bigger boom
House prices

House prices: from boom to even bigger boom

UK house prices have risen to new to record highs, says Nicole Garcia Merida. Demand continues to outpace supply, but continued low interest rates, th…
9 Apr 2021