Corrosive Complacency

While many things might cause the next recession, including geopolitical problems, struggling emerging markets due to the rising dollar, and growing non-financial corporate debt levels (to name a few), one that is more insidious is complacency. Good times lead to overly optimistic forecasts and loosening of credit standards, which leads to risk mispricing. And that leads to increasingly risky financial behavior, which sets the stage for the next recession.