US Economic Crisis, Its History, and Warning Signs
By KIMBERLY AMADEO
Reviewed by MICHAEL J BOYLE
Updated November 29, 2020
https://www.thebalance.com/u-s-economic-crisis-3305668
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What Are the Warning Signs of a Crisis?
Modern U.S. economic history suggested the next crisis was to occur between 2019 and 2021, and in fact there was a recession in 2020. That doesn't tell you where the next one will come from, what the result will be, and how to defend yourself. What would have protected you in previous crises might be the worst thing to do in the next one.

You must watch for the warning signals.

The first sign is often an asset bubble. In 2008, it was housing prices. In 2001, it was high-tech stock market prices. In 1929, it was the stock market. It's usually accompanied by a feeling that "everyone" is getting rich beyond their wildest dreams by investing in this asset class.

The next warning is the "get rich quick" ads everywhere. You feel like you're being left out. And, this is true for some time leading up to the crash. That's the nature of an asset bubble.

The third symptom occurs when self-proclaimed experts write books predicting prosperity beyond imagination. They say "this time it's different." It's called irrational exuberance. It could last for months or even a year or two. But it never lasts forever.

In March 2019, the Federal Reserve warned of another economic crisis due to climate change. Extreme weather caused by climate change is forcing farms, utilities, and other companies to declare bankruptcy. As those loans go under, it will damage banks' balance sheets just like subprime mortgages did during the financial crisis.

The Fed blamed the growth in fossil fuels on the lack of a carbon tax. Businesses and households are not accurately charged for using these fuels. The Fed calls this "a fundamental market failure." It said that failure could lead to a financial crisis.30

Think this sounds far-fetched? Wildfires have already forced utility giant Pacific Gas & Electric into bankruptcy. It faced $30 billion in fire-related liability costs.31 Munich Re, the world's largest reinsurance firm, blamed global warming for $24 billion of losses in the California wildfires. It warned that insurance firms will have to raise premiums to cover rising costs from extreme weather.32 That could make insurance too expensive for most people.