We already know what will cause the next global financial crisis because the people who bet against the subprime housing market ahead of the GFC, are placing huge bets against the subprime energy market now by trading the high yield credit markets. Just like when they placed the bets ahead of the GFC, they didn't know how far out the crisis was. It turned out that they were very early. The same thing is happening this time. We don't know how long this crisis will take to come to climax, because just as last time they are trying to solve the problem of distressed debt with more debt. The difference this time is the size of the problem is magnitudes larger. I read that the energy market is about 15% of the high yield bonds but as with the GFC it is the bets on the default and then bets on those bets in the derivatives market that are the problem. The lower the price of oil, the higher the chance of default on the debt, the higher the cost of that debt rises affecting all other junk rated debt. We don't know the date that this financial system will fail. We might have a date of when the new financial system will be in place by, because they showed a very interesting cover in 1988 on The Economist magazine (shown at the bottom of the page). It shows the possible date as 2018. Also beginning in January 2018 a mandatory ID card will also be in place in the U.S. I am no expert on this topic but that is how I understand it in brief.
Oil has continued its rapid decline since the start of the year.
Junk bond high yield credit is soaring since the start of the year but not yet to 2011 levels so not that high by historical standards. See chart here at stlouisfed.org
This is the cover of The Economist magazine in 1988 showing a phoenix holding a gold coin with 2018 on it rising from the ashes of the burning currencies. I will do an article about this soon with some of the main points.
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