“Of all the reasons given for the slowdown in the global economy, it seems that the world’s ballooning debt load has fallen to near the bottom of the list for some reason. Perhaps it’s because interest rates haven’t shot higher as many expected, but large amounts of debt have other negative implications that may now be coming to light.
“In 2012, Carmen Reinhart, Vincent Reinhart and Kenneth Rogoff wrote in a paper published on the National Bureau of Economic Research’s website that economies with high debt potentially face “massive” losses of output lasting more than a decade, even if interest rates remain low. Could that be happening now?
“A U.S. Commerce Department report showed on Tuesday that the three-month annualized rate of change in new orders for nondefense capital goods excluding aircraft — a series that provides insight into capital spending without undue volatility from aircraft orders — declined for the fourth consecutive month. At the same time, the Institute of International Finance issued a report saying that the mountain of global debt expanded by $3.3 trillion last year to $243 trillion, or more than three times worldwide gross domestic product.
“Total debt in the U.S. grew by $2.9 trillion to more than $68 trillion in the largest annual increase since 2007. What’s truly disturbing is that the IIF said U.S. nonfinancial corporate debt stands at 73 percent of GDP, close to its pre-crisis peak. That helps explain why the first quarter ushered in the most credit ratings downgrades for U.S. companies relative to upgrades since the beginning of 2016, according to S&P Global Ratings data compiled by Bloomberg.”
“Debt repayments by the world’s poorest countries have doubled since 2010 to reach their highest level since just before the internationally organised write-off in 2005, campaigners have warned. The Jubilee Debt Campaign (JDC) said a borrowing spree when global interest rates were low had left many developing nations facing repayments bills that were forcing them into public spending cuts.
“Plunging commodity prices, a stronger dollar and rising US interest rates had combined to increase debt repayments by 85% between 2010 and 2018, the JDC said.”
“The head of the International Monetary Fund has warned that the majority of countries around the world can expect slower growth in 2019 as the global economy loses momentum.
“Christine Lagarde said rising trade tensions, concerns over Brexit and tougher financial conditions as central banks raised interest rates had “increasingly unsettled” the world economy over recent months.”
“During the crisis, President Barack Obama did too little to protect the ownership gains that Americans had enjoyed in the late 1990s and early 2000s. Hamstrung by a recalcitrant Congress and an internal distaste for bailing out citizens who made bad real estate decisions, Obama enacted only a modest program to reduce foreclosures.
“The result was that homeownership fell to levels not seen since the mid-1960s. Now it’s recovering, but if another recession hits, all bets are off.”
“Bernanke didn’t see 2006 flat curve as sign of impending slump. ‘Mini-inversions’ like last week’s can precede longer episodes.”
“The inability of UK politicians to agree how to leave the European Union has plunged Brexit into chaos and helped paralyze the British economy.
“A weak housing market, slumping autos production, declining investment and downbeat executives all suggest that nearly three years of uncertainty over Brexit is causing the economy to stagnate. The latest warning sign came Tuesday, when the British Chambers of Commerce said a survey of 7,000 businesses indicates that economic growth “nearly ground to a halt” in the first quarter.”
“The World Trade Organization has warned that global trade will face “strong headwinds” over the next two years …the WTO did not just blame new tariffs and retaliatory responses for the slowdown in trade growth.
“It also cited “weaker global economic growth, volatility in financial markets and and tighter monetary conditions in developed countries” as factors.”