Economics was never meant to be used for forecasting, which is why whenever you ask economists about the next financial crisis, they open their financial history books.

While others already started predicting the next financial crisis, we would like to define its historical nature and timeline.

We share the view that financial crises will happen in the future just as they have happened in the past, but we think that a 2008-like meltdown or worse is quite unlikely anytime soon.

Lesson #1: Even crises that turn out to be small by historical standards feel at the time like the end of the world.

Lesson #2: Investors have to expect a financial crisis slightly more often than every three-and-a-half years.

Lesson #3: Every generation gets a ‘Big One’, i.e. a crisis that shapes their collective memory.
- What is the opposite of a crisis?

Lesson #4 is: Calm markets have historically tended to take quite some time before switching into crisis mode.
- The ingredients for disaster

Lesson #5: Capital-flow bonanzas, financial innovation, housing booms and financial liberalisation are the fundamental ingredients for financial crises.
- Doomsayers do not have a strong case right now


In view of the natural rhythm and frequency of the average financial crisis as well as the current record-low temperature in markets, the next financial crisis should not be with us before 2019 (roughly four years after the commodity crisis in 2015/2016) and a generational shocker should not occur before 2025 (roughly 18 years after the Great Financial Crisis).

Looking at the four factors identified by Reinhart and Rogoff, we see that only one of them applies (and only partially so).

You could indeed claim that we have seen a capital-flow bonanza, particularly in fixed income as rates have reached ever new lows recently.

More extravagantly, the rise of cryptocurrencies, with bitcoin as the poster child, points to similar excesses.

As for the other three factors, we struggle to find them: financial innovation seems far off, with banks busy downsizing businesses and increasing their capital bases in the past few years.

Housing booms can be spotted in some places, such as Silicon Valley, tier-1 Chinese cities, Sweden and Germany, but they are not as broad-based as back in 2007.

And certainly, the most important economy, the US, is still far away from a major housing bubble.

Finally, financial liberalisation is still far out, as regulatory burdens have steadily increased worldwide in the past decade as a consequence of the Great Financial Crisis.