“Drowning in Debt”

By Shlomo Maital

debt drown

   A new report from McKinsey Global Research, “Global Debt: Challenges and Opportunities”, sounds the alarm, from a rather unlikely source – a consulting company that makes its living on optimism and activism.

   Here is what McKinsey says, worth heeding!

   ”The world is deep in a flood tide of debt. Do we care and what do we do about it?

….More than 8 years since the 2008 global financial crisis started the world seems to be drowning in debt. Global economic growth remains anemic..some economists attribute it to the high level of debt (govt., businesses, households have been devoting significant resources to debt servicing instead of productive activities).   …Global debt has been growing faster than the economy… as of mid 2015 it stood at 294 % of global gross domestic product, up 25 percee end of 2007 and 48 percentage points since the end of 2000. In many countries debt has increased to levels not normally seen during peacetime in advanced economies.”

     The world has painted itself into a corner.   Advanced economies desperately need major investments in infrastructure and human capital. Instead they are either a) slashing public spending, to try to control the high level of debt, or b) recycling huge debts, borrowing new money just to pay off old money, because slow growth has put the brakes on tax revenues and increased deficits.

       I see little sign of creative thinking to solve the problem.   Central Bankers recently meet at Jackson’s Hole, Wyoming, took off their ties and formal dress…. And heard Janet Yellen, head of the US Fed, speak about how she plans, maybe, perhaps, to raise interest rates a bit this year. In Europe the central bank continues to push negative interest rates, after everyone knows for sure that you cannot get out of the painted corner solely by adding to the already huge mountain of money.

     Does anyone have a creative idea? Our central bankers are completely out to lunch… literally.

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