“In the United States, the ratio of corporate debt to GDP is at record-high level. In several European countries, banks are overloaded with government bonds. In China, bank profitability is declining, and capital levels remain low at small and medium-sized lenders…
“Vulnerabilities like these are on the rise across advanced and emerging market economies… if they continue to build, especially with still-easy financial conditions, they could amplify shocks to the global economy, raising the odds of a severe economic downturn a few years down the road.
“This poses a dilemma for policymakers seeking to counter a slowing global economy… By taking a patient approach to monetary policy, central banks can accommodate growing downside risks to the economy. But if financial conditions remain easy for too long, vulnerabilities will continue to build, and the odds of a sharp drop in economic growth at some later point will be higher.
“Why do we worry about financial vulnerabilities? Because they can amplify the impact of sudden shocks—such as a sharper-than-anticipated economic slowdown, an unexpected shift in monetary policy, or an escalation of trade tensions. Higher vulnerabilities give rise to greater financial stability risks.”
“Debt ratios of euro-area governments may have fallen in 2018 from a year earlier, but they’re still substantially higher than before the 2008 financial crisis, according to data published Tuesday.
“Eleven euro-zone countries had debt ratios higher than 60 percent of GDP — the European Union ceiling — with the highest registered in Greece, Italy and Portugal.”
“Italy’s government approved an economic growth plan in the early hours of Wednesday after a bad-tempered cabinet meeting that exposed divisions in the ruling coalition and fuelled speculation of a government collapse.”
“Confidence in France’s manufacturing sector dropped unexpectedly to its lowest level in nearly four years as business leaders’ assessment of their own production slumped.”
“Protesters returned to Algeria’s streets after jubilation over ailing President Abdelaziz Bouteflika’s vow not to seek re-election gave way to fears of a plot to prolong his two-decade rule.
“The move came after Algeria’s army chief, Lieutenant General Gaid Salah, announced last week that members of the ruling elite in the major oil and natural gas-producing country, would be prosecuted for corruption.”
“Fierce fighting intensified in the Libyan capital, Tripoli, leading to the death of more than 254 people and the injury of 1,228 others, but the cost of these battles may trespass Libya borders, causing serious consequences for neighbouring Tunisia.
“Tunisia, which shares a 500 kilometre border with Libya, is wary of the consequences of a second-week of fighting after the retired General Khalifa Haftar launched a military operation on 4 April to take control of the city.”
“Industrial output index in Taiwan declined for the fourth straight month in March, falling 9.88 percent from the previous year to 103.82 amid uncertainty in the global economy, according to industrial data released Tuesday.
“The year-on-year contraction in March marked the biggest decline since January 2012, when it slumped 15.91 percent.”
“Calls for Australia’s central bank to cut interest rates as early as next month increased significantly on Wednesday, a Reuters poll showed, as first-quarter inflation data was disappointingly weak.
“The Reserve Bank of Australia has left policy at a record low 1.50 percent since last easing in August 2016. But this record spell of unchanged rates is likely to break with 12 of 23 economists now predicting a cut on May 7.”
“As the eternal optimist, I have been trying very hard to ignore some of the recent warning signs we have seen in MMGY’s research as well as in the economic news and revenue forecasts that pervade around the world…
“But… I see increasing and worrying signs about where worldwide demand is headed and evidence that suggests the U.S. is poised for a slowdown across every travel category.”
“If the next crisis is anything like the last it could compel policy makers to consider some pretty unorthodox monetary interventions. One of those has been around for almost a century, even if it’s rarely been tried: money that “rusts”. The idea traces to an unorthodox thinker named Silvio Gesell… Gesell proposed that money be designed to steadily depreciate. He proposed that the rate of decline be fixed at 5 percent a year, though the rate could vary.”
“In recent decades, governments from across the world have rarely run budget surpluses, frequently increasing spending to pay for things that were deemed to be essential. However, they have always claimed that they intended to cut the deficit eventually.
“Under MMT that could be about to change – and if it does, the US economy will be entering uncharted territory.”
“A final approach would be so-called helicopter money: The Fed would distribute money directly to citizens, in the hope that they would spend it. This is akin to fiscal stimulus, but financed by new money creation rather than by federal spending.
“It’s a radical approach that would probably require legal changes, but some believe it could be powerful. Others worry it could end up unleashing a spiral of inflation.”