Wednesday, March 30, 2016

[2nd_CB] Another Financial Crisis in the future?

Few economists support that there will be another financial crisis in the future. One of them is Robert J. Shiller who enrolled at Kalamazoo College in his freshmen year before transferring to the University of Michigan. He later won the Nobel Prize in Economics. He is currently an Economics professor at Yale University. He expected 2000 stock market crash and 2008 Financial Crisis.

He became famous for expecting year 2000 stock market crash with his book, "Irrational Exuberance" in 2000. In 2005, he additionally pointed out the real estate problem by adding his arguments into the second edition of the book. His points about the real estate problem came true when Financial Crisis occured in 2008.

In 2015, Robert Shiller came up with the third edition of the book. He insisted that there will be a possible bond market crash in the future, approximately 2025. The following youtube video is about Robert Shiller's discussion about his thoughts on another Financial Crisis. This is an hour long video, so I recommend our classmates to just watch first eight minutes to have a broad and general idea about his argument.

Based on his argument and your own research, do you see the problem in bond market? Do you think the bond market would be the next place to be crashed? What is your thought on U.S. bond market? Please feel free to share your own ideas about future financial crisis. Other sources are more than welcome to our discussion!


  1. It is possible that multiple bubbles are primed to be popped. Great examples specifically would be the bond market, tech stocks/startups, student loans, and companies based in China.

    Because of historically low interest rates over the last decade, junk bonds are more favorable amongst investors. The riskier the bond is, the higher interest rate it pays out. If AA rated government bonds are paying next to nothing in a low interest rate environment, an investor might be willing to put more of his money in higher yielding but riskier junk bonds.

    When the companies that issue these bonds start to perform poorly, they might default on their debt obligations. This would cause the bond market bubble to pop if this happens on a wide scale.

    Article #1:
    Article #2:

    1. A student loan bubble bursting would be less extreme than the most recent financial crisis. However, due to the nature of student loans in comparison to mortgages, the impact of high defaults on students loans would have a much smaller impact on the economy. This is discussed in the article below.

  2. I'm always very skeptical at first when I hear a "this person called the last recession, and he says there's another one coming!" stories, but there are three very good reasons to take this one more seriously.

    1. He went to K so he is obviously brilliant. If that doesn't convince you remember he's also a professor at Yale.

    2. He gives such a long time scale for it to happen. This isn't being used as a scare tactic to draw attention to himself.

    3. This last one I think is the most important. The last time he was right FOR THE RIGHT REASONS. Not only did he predict the financial crises, but he predicted that it would be a bubble and where the bubble would be.

  3. I agree with Kenny that bubbles can be formed and popped at anytime and anywhere without any warning.

    When looking at the bond market Alan Greenspan stated that low yields in the bond market are creating a bubble similar to the stock market bubbles.
    The link above shows that bond yields have been decreasing over the years. So this bubble is forming and once it forms, according to Greenspan, it will have consequences we cannot predict.

    One of the main issues is the low interest rates. When interest rates are low, the prices of bonds increase. The issue here is when interest rates are moved back to where they were before because the bond yields will decrease. This is a big deal for long-term bonds since their values fluctuate depending on the interest rates and their return in uncertain.