Another financial crisis STARTED?
Nagging debt risks, heated currency wars and renewed market turmoil are making the global economy a precarious place, six years after the financial crisis.
On the sixth anniversary of the S&P 500’s biggest one-day drop in history – a 106-point plunge on Sept. 29, 2008, that marked the beginning of one of the worst market collapses of all time – the respected annual Geneva Report on the World Economy is raising concerns about a “poisonous combination” of record and still-rising global debts and chronically slow growth. It warned that this leaves the world exposed to a heightened risk of further economic stagnation and even another potential financial crisis.
The report comes in the midst of a disquieting September funk in global financial markets, as the sharp divergence between the accelerating U.S. economy and stagnation in much of the rest of the world has fuelled growing nervousness and rising volatility. Deepening concerns about slowdowns in China and Europe have sent some commodity prices to eight-month lows, and a flight to the U.S. dollar has roiled currency and bond markets.
The straw stirring the entire murky mix is the likelihood that the U.S. Federal Reserve Board will start raising interest rates next year even as other central banks are leaning the other way – raising considerable uncertainty about how well the global economy and financial markets can weather such a pivotal policy change.
The report, by the Centre for Economic Policy Research, a leading European economic think tank, warned that raising interest rates too quickly while the world is still so heavily in debt “would risk killing the recovery. Beyond pushing the economy into a prolonged period of stagnation, this would also put at risk the deleveraging process which is already very challenging.”
The report said that “contrary to widely held beliefs, the world has not yet begun to de-lever.”
It estimated total debt of all kinds (government, corporate and consumer) at a record 212 per cent of annual global gross domestic product, up from about 185 per cent in 2008.
