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Opinion: High debts and stagflation will bring mother of all financial crises
Project Syndicate
The end of the easy-money era rips the mask off the insolvent zombie economy.
The explosion of unsustainable debt implied that many borrowers were insolvent “zombies” that were being propped up by low interest rates.
Getty Images/iStockphotoNEW YORK (Project Syndicate)— The world economy is lurching toward an unprecedented confluence of economic, financial, and debt crises, following the explosion of deficits, borrowing, and leverage in recent decades.
In the private sector, the mountain of debt includes that of households (such as mortgages, credit cards, auto loans, student loans, personal loans), businesses and corporations (bank loans, bond debt, and private debt), and the financial sector (liabilities of bank and nonbank institutions).
In..." READ MORE
Nouriel Roubini Criticizes Musk And Trump Over Rate Cut Calls: 'Both Kings Of Highly Leveraged Debt Zombi
Prominent economist Nouriel Roubini has criticized Elon Musk and Donald Trump in his tweet highlighting their calls for rate cuts.
What Happened: Roubini cited Musk’s tweet on interest rate cuts where the Tesla founder called for a rate cut saying the central bank is increasing the probability of recession.
“Trend is concerning. Fed needs to cut interest rates immediately. They are massively amplifying the probability of a severe recession,” Musk had tweeted on Nov. 30.
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Citing this tweet, Roubini criticized both Musk and Trump saying they tried to bully the Federal Reserve into cutting rates because of their own interests.
No wonder that both Trump and now Musk tried to bully the Fed to cut rates. They are both kings of highly leveraged debt zombie enterprises and talking their own book https://t.co/cZzTzUy8V7
Price Action: Markets surged this week following Powell’s speech on Wednesday where he said the central bank may slow the pace of rate hikes as soon as December. The SPDR S&P 500 ETF Trust had closed 3.14% higher on Wednesday while the Vanguard Total Bond Market Index Fund ETF closed 0.78% higher.
Roubini is not the only noted economist to have criticized Trump. Former Treasury Secretary Lawrence H. Summers had said that Trump, in many ways, set the stage for the inflation that the U.S. is witnessing.
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The Unavoidable Crash | by Nouriel Roubini - Project Syndicate
"After years of ultra-loose fiscal, monetary, and credit policies and the onset of major negative supply shocks, stagflationary pressures are now putting the squeeze on a massive mountain of public- and private-sector debt. The mother of all economic crises looms, and there will be little that policymakers can do about it.
NEW YORK – The world economy is lurching toward an unprecedented confluence of economic, financial, and debt crises, following the explosion of deficits, borrowing, and leverage in recent decades.
✓ In the private sector, the mountain of debt includes that of households (such as mortgages, credit cards, auto loans, student loans, personal loans), businesses and corporations (bank loans, bond debt, and private debt), and the financial sector (liabilities of bank and nonbank institutions).
✓ In the public sector, it includes central, provincial, and local government bonds and other formal liabilities, as well as implicit debts such as unfunded liabilities from pay-as-you-go pension schemes and health-care systems – all of which will continue to grow as societies age.
Just looking at explicit debts, the figures are staggering.
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Globally, total private- and public-sector debt as a share of GDP rose from 200% in 1999 to 350% in 2021. The ratio is now 420% across advanced economies, and 330% in China. In the United States, it is 420%, which is higher than during the Great Depression and after World War II..."
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The Institute of International Finance (IIF) is the global association of the financial industry, with about 400 members from more than 60 countries.
The IIF provides its members with innovative research, unparalleled global advocacy, and access to leading industry events that leverage its influential network. Its mission is to support the financial industry in the prudent management of risks; to develop sound industry practices; and to advocate for regulatory, financial and economic policies that are in the broad interests of its members and foster global financial stability and sustainable economic growth. IIF members include commercial and investment banks, asset managers, insurance companies, professional services firms, exchanges, sovereign wealth funds, hedge funds, central banks and development banks.
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