Rising interest rates, businesses shutting down and stock markets facing a downturn has all led to an inevitable question – are we facing another financial crisis? The global financial crisis of 2008 taught us that a financial meltdown can have far-reaching consequences.
While some experts believe that the current situation is only a temporary bump on the road to recovery, others fear that we may be on the brink of yet another financial catastrophe. Alex Cook, financial commentator and founder of Wealth with Purpose recently joined us on 20Twenty to talk about the latest developments around the world.
What are the implications for the Australian economy and investors, and is there a biblical approach to navigating the way forward?
Lean On God
‘I think this is a great time to really learn to lean on God and draw near to Him,’ says Alex. ‘Often when we grow in God, it’s when we’re under pressure. God knows how we’re going to behave and act. But often we don’t know that ourselves until we’re faced with these situations.’
Alex believes that as we look back over history, we can see that crises are not unusual. They are part of the business cycle, and we are starting to see some warning signs of potential crises ahead. Because interest rates have risen so quickly, many overseas banks who hold government bonds as their source of reserves have seen their value take quite a hit.
‘There are two main things that cause banks to get into trouble,’ says Alex. ‘You have a liquidity crisis or you have a solvency crisis. What’s gone on so far is actually a liquidity problem, and what that really means is when depositors turn up to the bank, the bank can’t give them all their money back.’
An Unusual Crisis
The other situation is solvency. This is usually where the crises start, and it’s when banks make bad loans. We’re seeing this in Australia at the moment, where a number of large construction companies have gone broke. Normally a solvency crisis occurs first, but this time what’s happening is an unusual crisis.
‘Certainly we’re going to see more bank failures,’ says Alex. ‘In the US at the moment the commercial property sector is under a lot of pressure and valuations are starting to come down. That’s going to put some pressure on the regional banks, which are the main lenders. But what I’d say to people though, is don’t be alarmed. The US system is very different from Australia.’
Do Not Become Enslaved
The biggest change since 2008 has been a dramatic increase in regulation. Australian banks are very well-capitalised and regulated. That’s not to say that they can’t get into trouble with bad debts, but it’s a long way off here. The US and Europe is certainly more problematic.
‘My concern for people is that they will become enslaved to the financial system,’ says Alex, ‘and that’s not what God desires for any of us. He wants us to be liberated and do good with the money He’s given us.’
Listen to Alex’s full interview on 20Twenty below: