## *...but we haven't noticed it yet?*

*When the crisis begins, often the most risky assets, the price of which is the most "inflated", the first begins to lose value. The most stable prices have the safest assets. The last that lose their value are the goods that have the most reliable backing. Due to their properties they may become a subject to speculation and even gain value during the crisis (e.g. gold).*

# World business cycles and the U.S. monetary policy
If we take the average length of the business cycle in the world as 8 years (my calculations for the period from 1825), then the current business cycle was already to end and the recession *should* have been going on. However, this did not happen because for some time now the business cycle is determined by non-market, exogenous phenomena - i.e. political decisions. [The monetary policy of the United States](https://www.federalreserve.gov/) is one of the most important factor shaping the cycles in the world for years. As the saying goes, when the America sneezes, the world catches cold. The same is true for the expansion phase - when the world's largest economy is prosperous, most of the world usually experiences a period of prosperity, too (with some exceptions caused by particular countries).

# Bubbles, bubbles everywhere
[The Quantitative Easing](https://en.wikipedia.org/wiki/Quantitative_easing) or the [zero-rate policies](https://en.wikipedia.org/wiki/Zero_interest-rate_policy) have led to an unprecedented situation in the economic history of the world. Interest rates were the lowest in history and at the same time this period lasted the longest in history. As the [Austrian school of economic thought](https://en.wikipedia.org/wiki/Austrian_School) believes, such a policy of stimulating the economic situation, the longer it lasts - this leads later to more serious side effects. There are hundreds of different speculative bubbles all over the world, from modern technology markets to more traditional ones - related to [real estate](http://www.visualcapitalist.com/biggest-real-estate-bubbles-2018/). On the way there are traditionally speculative stock markets or even corporate bonds. Bubbles can be seen in many markets. [The shadow banking sector](https://en.wikipedia.org/wiki/Shadow_banking_system) has also emerged and helped financing them.

# Crypto, built-in price instability
![Bitcoin logo](https://en.bitcoin.it/w/images/en/c/cb/BC_Logotype.png)
One of the more spectacular (though not the largest) bubbles works on the market segment of modern technologies related to blockchain applications. The most common use of it is still cryptocurrencies. This market has reduced its capitalization during the year by over 80%! (from $830 billion at the beginning of January this year to less than [$150 billion now](https://coinmarketcap.com/charts/)). Cryptocurrencies are a very risky asset, because although they are based on solid, secure technology, the majority of cryptocurrencies have a built-in price volatility. As prof. [Steve Hanke has noticed, in bitcoin "You have a completely inelastic supply curve"](https://www.coindesk.com/bitcoin-economist-steve-hanke-airtm-crypto-stablecoin-venezuela) in relation to demand, which can change significantly. Therefore, the market mechanism leads most crypto to significant price changes. We see this especially in the last two weeks, when the price of bitcoin fell by 30% (from $6500 to $4500).

# FAANG stocks are falling, too
![FAANG logo](https://static.seekingalpha.com/uploads/2018/8/5/40160366-1533524372111365_origin.jpg)
If we talk about (un)stability, it is worth noting how much the stock prices of technology companies were overvalued. From summer price records, Facebook shares dropped by 38%, Amazon by 26%, Apple by 24%, Netflix by 38%, Alphabet (Google) by 19% (my calculations). The FAANG sector has lost a total of about [$1 trillion](https://www.cnbc.com/2018/11/20/techs-popular-faang-stocks-have-lost-945-billion-and-counting-from-highs-amid-tech-rout.html). In terms of capitalization, it is more important than cryptocurrencies, and moreover, it is related to decisions that investors make on other, mature stock markets. If the downward trends in the technology sectors continue, it will be seen that there are not many engines of growth in traditional markets. The declines in the modern technologies sector would later spill over to other sectors. Initially, these will be shares, but later the prices may be taken up by the real estate market (here in some cities abnormally high prices are recorded, which are raised e.g. by speculative capital from China). Finally, corporate bond markets can eventually collapse, and the next can be the step to government bonds. Considering the potential indebtedness of some countries that have not been able to conduct a properly good countercyclical policy (significantly reducing debt in good prosperity), it exposes them to increased risk when they have to increase budget deficits. Some shadow banking institutions will fall down and the plague will move to the traditional banks sector. Debt and banking crises can start. [Tween crises](https://en.wikipedia.org/wiki/Twin_crises) are disastrous.

# Lehman Brothers and #Poland
Many people are waiting for a spectacular spark that will ignite the world and be a signal to start another crisis. In August 2007, [I began to warn](https://pl.wikipedia.org/wiki/Krzysztof_Piech) of the forthcoming American crisis in various, widely-read Polish mass-media. For a few months, nobody believed me that something really bad was happening in the U.S. (and even fewer people believed that it could have any impact on Poland). In the ruling coalition or in the office of the Minister of Finance, there were people who knew my scientific achievements in the field of crises. They prepared Poland well for the crisis and, as a result, my country was almost the only one in Europe that had no recession in 2009. It was called the ["green island"](https://media.wplm.pl/thumbs/ODI1L3VfMS9jY18yZDRiNS9wL3dwL3Bob3RvLzIwMTMtMDMvMzQ0MC8yMjczL3BhcF8yMDA5MDUyOV8wZmUuanBn.jpg) by the Prime Minister Donald Tusk, as Poland (Greece and Cyprus) have positive economic growth in 2009, while the rest of Europe was in recession. Preparations for the crisis have started in Poland a several months before the Lehman Brothers bank has collapsed (September 2008). So this spark did not cause such a big panic in Poland as in other countries.

# Crypto and FAANG as a spark of the next crisis
And what if the "fall" of the next "Lehman Brothers" was already there, but we did not notice it? And what if it took place in the modern technology markets, although not listed on the 'old' stock exchanges? [Lehman Brothers](https://en.wikipedia.org/wiki/Bankruptcy_of_Lehman_Brothers) had a capitalization of approx. $640 billion, while the total value of cryptocurrencies dropped by a similar amount of money, i.e. $680 billion, since its ATH. The collapse of Lehman Brothers caused panic because other banks could have been affected by a similar illness of bad debts. In case of cryptocurrencies, problems may also "spill" over to other sectors, because VC funds invested in many [ICO](https://en.wikipedia.org/wiki/Initial_coin_offering) projects. The scale of these investments was smaller than in the case of the major technology companies in the world, but when they started losing money, they could try to save other investments from similar patterns and started withdrawing money from other IT markets, too. In consequence, the current collapse of the FAANG stocks can be the announcement of further declines in traditional markets, and later on other world stock markets.

# We were blind to see what we did not want to see
Perhaps the crisis has already begun, and while we waited for a spark at traditional markets we dit notice its beginning. As in the case of a boiling frog - if the temperature rises gradually, it does not see that it is boiling. It is similar with us now. This is [*why are we, so blind to see*...](https://www.youtube.com/watch?v=fPO76Jlnz6c) The markets are gradually breaking down: starting from the most profitable assets (and at the same time the most risky ones), then more other markets will fall. Soon it will turn out that there are no more stock market growth engines. People will notice that major stock market indices show losses, too. Later, the [wealth effect](https://en.wikipedia.org/wiki/Wealth_effect) will start to function - decreasing investor assets will cause risk aversion, will limit consumption. Ready recipe for recession.


*The winter is coming...*

Let's hope it is not the winter of the century.

Krzysztof Piech