Europe Economy

'Crowding Out' Will Lead to Another Recession: Advisor

Governments and companies will soon find themselves battling over the small supply of private savings available, paving the way for another recession, Ron Napier, head of Napier Investment Advisors, told CNBC Monday.

"In 2010 we'll have crowding out in world capital markets because the government deficits are too large. That is going to create a huge collision between the private sector and the public sector," Napier warned. "In 2011, when (governments and central banks) try to withdraw stimulus, withdraw monetary looseness … they are going to see things possibly head back into recession."

"The canary in the coalmine is going to be mid-2010 if interest rates and bond markets around the world start to rise — that is going to be a sign of crowding out," he said.

He told CNBC the private sector will struggle to raise enough capital through long-term funds as governments around the world continue to rack up large deficits, thereby taking up "huge amounts of private savings."

Crowding Out Will Be a Problem

In Australia, the central bank has raised interest rates twice in the last couple of months as the country's leaders see an improvement in the economy.

Other financial leaders are mulling exit strategies from their stimulus measures and low-interest rate monetary policies.

But economists and analysts are concerned about when they will implement these strategies, as the global recovery remains fragile with unemployment rates continuing to rise and bank lending still slightly stagnant.

Recently worries of an asset bubble have arisen, specifically in Asia's property sector.

Loose monetary policies around the world are creating asset bubbles in emerging markets, Hong Kong Chief Executive Donald Tsang said in a speech in Singapore, Monday.

"Today, with zero, or near zero interest rate policies, we see a repeat of rapid carry trades and leveraged capital flows that are once again creating asset bubbles in the emerging markets," he said.