Interesting comments by the Fed Chair. But upon (20 seconds of) reflection, one can identify any of the following as a potential source of systemic financial risk in the next 24 months, not to mention our lifetimes:

  • The collapse of a US clearinghouse due to an exogenous market failure (and no resolution authority on the part of the US government to deal with it)
  • Systemic defaults in the student debt market
  • A trade war between the US and China
  • A meltdown of the Chinese financial system or run on systemically important (and globally interconnected) Chinese bank
  • A nuclear confrontation on the Korean peninsula (or beyond)
  • A massive cyberattack by criminals or terrorists on US (or European) financial infrastructures
  • A withdrawal of the US from the WTO
  • Massive social unrest from income and wealth inequality
  • Black swan operational failure or collapse by electronic trading systems
  • A default on US debt by the government

Again, this took me 20 seconds. There’s always (something with) Russia, bird flu, meteors, etc.

I can’t cosign this level of optimism, though I wish I could. Regulators—and policymakers—should stay alert.

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