Economist Shilling: We 'Very Well Could Have a Financial Crisis' Like 1998

The plunge in oil prices to five-year lows already has spawned turmoil in economies and financial markets around the world, and more could be coming, says Gary Shilling, founder of A. Gary Shilling economic research/money management firm.

"We very well could have a financial crisis" like 1998, when Russia defaulted on its debt and U.S. stocks endured a 19 percent correction, he told Yahoo.

The oil price drop and the decline of commodity prices in general since 2011 will play a disruptive role, he predicted. So will the "competitive currency devaluations" going on in Japan, the eurozone and other nations.

"Everyone is devaluing against the dollar and emergency market currencies are collapsing. I think we'll see a lot of financial crises because there's a tremendous amount of leverage out there."

And what about the United States?

"I think the U.S. economy is fairly immune," Shilling said, noting that exports account for only about 13.5 percent of GDP.

But our financial markets are at risk, he argued. "The energy price decline is good for consumers, but markets are telling us there's something else there and it's the financial markets. Does this cause real financial problems that spill over, and we do get a big selloff in stocks? So far that's not clear, but it's possible."

Oil prices are plunging, the ruble and Russia's economy are in free fall and financial markets around the world are showing fragility.

The global tumult may cause the Federal Reserve to delay raising interest rates, says David Rosenberg, chief economist at Gluskin Sheff + Associates. Most economists expect the Fed to begin its hikes around the middle of next year.

"The Fed would like to start raising rates. Under normal circumstances, they probably would — sooner, rather than later — based on the fact that we're at zero and the labor market is firming," Rosenberg says, according to Bloomberg Businessweek.

"The problem is that these are not normal times. The Fed has never turned a blind eye to the rest of the world."

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