Michael Burry warns of next financial crisis

by MPA06 Jan 2016
Michael Burry, renowned financial guru who was recently portrayed by Christian Bale in The Big Short, said that the government and society at large has learned nothing from the last financial crisis, and that the next one may be on the horizon.
 
The hedge fund manager warned that debt stemming from the government’s standing policy of “easy money” is precipitating a gradual push towards adopting negative interest rates, a step that would pose an unsustainable burden on the global financial system.
 
“The Fed’s policies widen the wealth gap, which feeds political extremism, forcing gridlock in Washington. It seems the world is headed toward negative real interest rates on a global scale. This is toxic. Interest rates are used to price risk, and so in the current environment, the risk-pricing mechanism is broken. That is not healthy for an economy,” Burry told New York Magazine.
 
“The idea that growth will remedy our debts is so addictive for politicians, but the citizens end up paying the price. The public sector has really stepped up as a consumer of debt. The Federal Reserve’s balance sheet is leveraged 77:1. Like I said, the absurdity, it just befuddles me,” Burry added.
 
Burry was part of a circle of analysts and professionals who foresaw the 2007 sub-prime mortgage crisis, and profited from its effects. Burry himself saw the signs as far back as 2005, and subsequently invested in customized financial products targeting sub-prime mortgages, effectively betting against the seemingly robust real estate market.
 
Despite his dire predictions for the next few years, however, Burry said that all is not lost as U.S.-made innovations continue cropping up at a rapid pace, complementing the growing number of experienced entrepreneurs. These developments might stymie a bubble’s effects on the economy and per capita purchasing power, he added.

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