Morgan Stanley Investment Management’s top strategist has outlined a trio of factors which he predicts will trigger the next U.S. recession

Ruchir Sharma, chief global strategist at Morgan Stanley Investment Management, in reflecting on the causes of the 2008 crisis in an opinion piece for the New York Times, explains that today “the markets are even larger, having grown to 360 percent of global G.D.P., a record high. And financial authorities — trained to focus more on how markets respond to economic risk than on the risks that markets pose to the economy — have been inadvertently fueling this new threat.”

Sharma, the author of “The Rise and Fall of Nations: Forces of Change in the Post-Crisis World,” summarized his trio of triggers:

1. Surging private corporate debt. Sharma explains that the typical American company owned by a private equity firm “has debt six times higher than its annual earnings” — or twice the level that a public ratings agency would consider high-risk or “junk.”
2. The China bubble. Sharma says the biggest risks outside the United States are in China, “which has printed by far the most money and issued by far the most debt of any country since 2008.” He explains that Beijing’s regulators have had little success reining in borrowers and lenders. “Easy money has fueled bubbles in everything from stocks and bonds to property in China, and it’s hard to see how or when these bubbles might set off a major crisis in an opaque market where most of the borrowers and lenders are backed by the state. But if and when Beijing reaches the point where it can’t print any more money, the bottom could fall out of the economy.”
3. Federal Reserve’s rate hikes. “Over the last 50 years, every time the Fed has reined in easy money by raising interest rates, a downturn in the markets or the economy has followed eventually. It may take a while, but trouble almost inevitably does come.”

His warning also comes with a disclaimer:

“But economists are more often wrong than right. Professional forecasters have missed every recession since such records were first kept in 1968, and one of the many reasons for this is ‘recency bias’: using economic forecasting models that tend to give too much weight to recent events,” Sharma wrote.

“They see, for example, that big banks are in much better shape than in 2008, and households are less encumbered by mortgage debt, and so play down the likelihood of another recession. But they are, in effect, preparing to fight the last war.”

Meanwhile, the Los Angeles Times recently explained that "one worrisome sign is that, when a crisis or recession comes — and experts agree it’s a question of when, not if — Americans will probably be in just as much debt as they were in 2008, if not more."

U.S. household debt peaked at $12.7 trillion in late 2008; It stands at $13.3 trillion today, the Times reported.

“There are more people on the margins than there were in 2008,” Mehrsa Baradaran, an associate dean at the University of Georgia School of Law who has written extensively about wealth inequality and the financial system, told the Times. “More people have been knocked out of the secure middle class. I think the next crisis will hurt as much if not more.”