A teller counts yuan at a bank in Lianyungang, in east China's Jiangsu province, in August 2015. Photo: AFP
Anthony Rowley, SCMP: Huge public, corporate and household debt looks like the ‘new normal’ for the global economy – until the next crisis
* Large debts at the public and private level may not matter as long as growth continues and interest rates remain low
* That could all change should a new financial crisis creep up on the global economy, as has happened before
In the “new normal” economic world, many beliefs have been turned on their head. Trade wars supposedly do not cause lasting harm, declining corporate output, earnings and investment are no cause for alarm, stock prices can go on rising regardless, and record global debt is nothing to lose sleep over.
Debt has now hit what the Institute of International Finance (IIF) in Washington calls “mind-boggling” proportions and Unctad – the UN body dealing with trade, investment and development issues – has warned of a new debt crisis. Yet, markets remain unfazed. It seems that “all is for the best in the best of possible worlds”, to quote Professor Pangloss in Voltaire's Candide.
The debt mountain has grown hugely, not only in Asia but also in the United States and Europe, and governments have become as heavily addicted to borrowing as have corporate and household sectors (in China especially).
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WNU Editor: People have predicting a day of reckoning when it comes to global debt for decades. It has not happened, with the exception of a few small isolated cases .... Greece eight years ago, and Russia in the 1990s (to name a few). President Trump mentioned a few months ago that he was not worried about current debt levels. He felt that the U.S. could handle current debt growth for the next decade or two. I do not share his optimism. All it takes is one major default, and people will panic. I had the unfortunate experience of seeing bank runs in Russia in the early 1990s, and it is a frightening experience. When people start losing confidence in money and the institutions that back it, the impact spreads like wildfire, and no government or international body will has the power to stop it.
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