Experts are now predicting a financial “ice age” for the global economy which they say is coming soon.
Global deflation is going to wipe around 75 per cent in value off the American S&P stock market, as western firms will be unable to compete with cheap Chinese exports, according to analyst Albert Edwards from french bank Societe Generale.
He gave the stark warning in an investment note to clients.
And he blamed the upcoming ‘carnage’ on American central bank (the Fed) and its British and European counterparts for inflating prices in the first place.
American Quantitative Easing (QE) – injecting extra money into the financial system – has pushed up global asset prices, teeing up a disastrous fall, Mr Edward believes.
He said: “Investors are coming to terms with what a Chinese renminbi devaluation means for Western markets.
“It means global deflation and recession.
“A commodity bubble and the resultant US shale investment boom were all consequences of the Fed’s QE.
“The illusion of prosperity is shattered as boom now turns to bust.
“But I do hope this time around the Queen won’t ask, as she did in November 2008, why nobody saw this coming!”
Pumping extra money into the economy was reaction to the 2008 crisis that was also followed by the Bank of England and European Central Bank – essentially creating millions of pounds of extra money to buy bonds and other financial assets, pushing up prices.
Mr Edwards said: “I believe the Fed and its promiscuous fraternity of central banks have created the conditions for another debacle every bit as large as the 2008 Global Financial Crisis.
“I believe the events we now see unfolding will drive us back into global recession.”
In reference to the central banks, he said: “Why can’t these incompetents understand that they are, once again, the midwife to yet another global unfolding economic crisis?
“But unlike 2007, this time around the US and Europe sit on the precipice of outright deflation.
“Indeed, it is all around us. But don’t expect the central bankers to comprehend the hole they now find themselves in.”
The analyst said the western service sectors won’t be able to withstand the pressure from Chinese deflation.
He said: “When an economy is hurtling towards recession it is almost always the manufacturing sector that takes the less volatile services sector by the hand and leads it into a recessionary underworld.”
The situation is bound to be a catastrophe for people and the economy, according to Mr Edwards.
The banker is an outspoken pessimist on the global economy, but his fears have been echoed by other leading figures.
Legendary investor George Soros has also said the Chinese crisis is set to plunge the world into another economic depression.
And this week RBS urged clients to ‘sell everything’ as commodity and share prices are set to plunge.