Why you should expect another stockmarket crash

Many fear inflation, but a deflationary debt collapse is a more likely scenario in the near term, says Tim Lee

Global equity markets have hit record highs on hopes of a strong economic recovery, particularly in the US. Yet major losses have been inflicted on several financial institutions this year. The most notable episodes were the short-squeeze on GameStop and the blow-up of Archegos Capital Management. At the same time, the VIX index of implied volatility of the S&P 500 has slid to its lowest levels since the Covid-19 crisis broke. This all seems difficult to square.

Most people think that the hits taken by certain banks and investors have been isolated incidents, and the fact that they have caused barely a ripple across the financial system as a whole reflects the robustness of the banking system today. But the odds are that we will soon see more blow-ups, potentially culminating in another global market crash.

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Tim Lee is an economist and a co-author, together with Jamie Lee and Kevin Coldiron, of The Rise of Carry: The Dangerous Consequences of Volatility Suppression and the New Financial Order of Decaying Growth and Recurring Crisis (McGraw-Hill, 2019)