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The National Interest wrote that this year may be the Federal Reserve’s last war under Jerome Powell’s leadership. Will there be an economic recession similar to the 2008 recession next year?
Desmond Luckman – National Interest.
Since 2008, there have been signs that serious trouble was brewing in the mortgage markets. The Fed is reeling as these problems worsen.
Lehman Brothers caused a global economic and financial crisis. In fact, earlier this year, then-Fed Chairman Ben Bernanke refused to consider the mortgage problem a serious problem, even though the Fed was still debating whether or not to raise interest rates.
The main question now is: Will the 2008 problem repeat itself in 2024? Despite worsening problems in the housing market and regional banks, the Federal Reserve is eager to raise interest rates to curb inflation, but Jerome Powell did not address the risks threatening the financial system in a news conference.
The silence about a major financial crisis this year is surprising. Along with the failures of Silicon Valley Bank and First Republic Bank, this is the second and third largest American bank failures of all time.
The problems facing the commercial real estate sector are difficult to assess. Vacancy rates have reached record levels and will continue to rise as rental agreements expire. Commercial property prices have fallen 22% since 2022. Morgan Stanley expects them to fall sharply before the end of this cycle.
In 2024, landlords will have to roll over about $500 billion in outstanding loans at interest rates significantly higher than those contracted. That threatens a wave of mortgage defaults as industry heavyweights like Brookfield and Blackstone foreclose on their mortgages and hand the keys back to lenders.
Regional banks are expected to default on mortgages and lose deposits following the Silicon Valley fiasco. With long-term interest rates rising, real estate problems could lead to the bankruptcy of 385 regional banks.
Prepared by Louay Tom – Kuwait
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