This somewhat alarmist headline by Jeremy Warner caught my eye this morning. He is a widely read British financial commentator with about 30 years in the business. Its interesting to read a commentary coming from that side of the pond.
Here are a couple of "facts" I gleaned from the article:
"According to investment bank Jefferies, some 70pc of all German bunds now trade on a negative yield. In France, it's 50pc, and even in Spain, which was widely thought insolvent only a few years ago, it's 17pc."
"The combined public debt of the G7 economies alone has grown by close to 40 percentage points to around 120pc of GDP since the start of the crisis, while globally, the total debt of private non-financial sectors has risen by 30pc, far in advance of economic growth."
Here are three of the author's conclusions:
"The financial crisis was meant to have exploded the credit bubble once and for all, but there's very little sign of it. Rising public indebtedness has taken over where households and companies left off."
"For all kinds of reasons, advanced economies, and perhaps emerging ones too, seem to have run out of productivity-enhancing growth and therefore need constant infusions of financially destabilising debt to keep them going."
"The flip side of the cheap money story is soaring asset prices. The bond market bubble is just the half of it; since most other assets are priced relative to bonds, just about everything else has been going up as well."
The author does not lay out a clear case for why a mass default lies ahead rather than some other less dramatic "muddle our way through" outcome. But perhaps he does successfully argue there is a fat tail risk for that or another similarly disruptive outcome ahead for the global economy in the not too distant future.
Here is the link:
telegraph.co.uk/finance/comment/jeremy-warner/11569329/Jeremy-Warner-Negative-interest-rates-put-world-on-course-for-biggest-mass-default-in-history.html
Comments
LOL. The financial crisis would have busted the credit bubble if governments let it. Instead, they scrambled to reflate it (and then some) as soon as possible. As I've noted previously, no one learned anything - the only question was, "How fast can we reboot to a few years prior?"
Now you have:
"The combined public debt of the G7 economies alone has grown by close to 40 percentage points to around 120pc of GDP since the start of the crisis, while globally, the total debt of private non-financial sectors has risen by 30pc, far in advance of economic growth."
"need constant infusions of financially destabilising debt to keep them going."
...which is certain to end well.