A man who predicted the 2008 financial crisis has issued an ominous warning about the future.
It's difficult to be optimistic about much right now given the state of the world, with the war between the US and Iran only likely to send bills in one direction, particularly with the Middle Eastern country still blocking off the Strait of Hormuz.
And it was the United States who managed to kick things off last time as well after the collapse of the housing bubble across the pond, something anyone who has ever watched The Big Short will understand.
There has perhaps never been a greater financial divide between the rich and the poor, with Elon Musk on the verge of becoming a trillionaire, and the ongoing wars are only likely to widen that divide.
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Geopolitical tensions are just one of the reasons why hedge fund employee Richard Bookstaber, who predicted the 2008 crisis in his 2007 book, suggests that something even worse may be on the horizon.
In the New York Times, he writes: "We have returned to a period of risk, one rife with the sort of pressures that have led to major financial crises. This time, the risks are spread across industries, markets and nations: artificial intelligence, the roughly $2 trillion private credit industry, stock markets, Taiwan and now Iran."
Energy bills, groceries, transport and household products are all expected to become more expensive as the US and Iran continue to wage war.
Richard explains: "An energy shock from the conflict that raises the cost of power or constrains its supply directly affects data centres and AI production."
The 76-year-old also warns that this could represent the ideal time for China to move against Taiwan, given that it is only a strong US military presence that has deterred them previously, with the US obviously now focused on Iran.
If this comes to pass, it could have a devastating impact on AI-related businesses, as a single Taiwanese company supplies more than 50 per cent of the world’s computer chips.
A combination of these factors could cause unprecedented damage to the global economy, according to Richard.
He writes: "Our current financial system fails not because any one thing goes wrong. It fails because different shocks propagate through the same structure and in ways that are hard to anticipate," he writes.
"When something eventually goes wrong, it spreads faster than it can be contained."
Richard adds that today’s financial system may be even more vulnerable than in 2008: "The physical risks of Iran, Taiwan and the A.I. boom are supplanting the types of financial risks that preceded 2008. I'd take financial risk any day. Financial risk moves just prices. Physical risk moves the world."
Topics: Iran, Artificial Intelligence
James Moorhouse