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Record World Debt Could Trigger New Financial Crisis, Geneva Report Warns

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http://www.theguardian.com/business/2014/sep/29/record-world-debt-financial-crisis-eurozone-geneva-report#start-of-comments

Global debts have reached a record high despite efforts by governments to reduce public and private borrowing, according to a report that warns the “poisonous combination” of spiralling debts and low growth could trigger another crisis.

Modest falls in household debt in the UK and the rest of Europe have been offset by a credit binge in Asia that has pushed global private and public debt to a new high in the past year, according to the 16th annual Geneva report.

The total burden of world debt, excluding the financial sector, has risen from 180% of global output in 2008 to 212% last year, according to the report.

The study by a panel of senior academic and finance industry economists accuses policymakers in many countries of failing to spur sustainable growth by capitalising on historically low interest rates while deterring exuberant lending.

It called for Brussels to write off the debts of the eurozone’s worst-hit countries and urgently embark on a “sizeable” programme of electronic money creation or quantitative easing to push down long-term interest rates.

It said unless policymakers kept a lid on risks in the financial system, especially overvalued property and stock markets, a trend for investing in assets with borrowed money could run out of control.

Remember Debt is Wealth, Wealth is Slavery and Slavery is Freedom..... from financial responsibility.

Still thank god they fixed the financial crisis from 2008 just think how bad this would be if they hadn't...

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Historically, big debt overhangs have tended to be dealt with via inflation and currency adjustment, the natural, market based way of haircutting creditors. ..And in conditions where excessive debt cannot be worked off through growth, restraint and inflation, necessary adjustment tends to happen much more divisively through default.

Sounds right to me. Default doesn't mean saver wipeout though. It can mean they are left in a better position than those with claims to overvalued assets. Quid quo pro, one thing for another thing. Savers getting more for their money.

And the UK has its own reason to allow market correction - given the heavy involvement in the banks that need to be put on profit track- rather than trying to snare creditors with inflation, who already have many market options to flee to.

Although here on the forums we often hear about 'smart money' (their own decisions) buying investment property at very high prices, accepting low yield rents, readying for the upcoming wipeout of savers. The sheer complacency of it, and one of the causes for the extra jump in hpi past couple of years from yield/capital seekers.

One of my repeated positions at hpc:

Creditors will prevail over debtors. Financial assets, and all other asset-classes of value, will be selectively repudiated by default, not obliterated by inflation.
A concerted attempt by political authorities to override market disciplines and write down debt through inflation would lead, in the extreme, to the disappearance of credit altogether - an outcome that would doom a modern political economy.

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Of course it's also true to say that the world in aggregate has never been richer- after all this debt mountain appears somewhere on the credit side of someones balance sheets- so we are a world blessed by both massive indebtedness and a surfeit of millionaires and billionaires. Some of us- a small number- have never had it so good.

But as luck would have it the organs of control are firmly in the grasp of these creditors - and the last thing they will choose is controlled writedowns- so some sort of catastrophic crash seems baked into the cake.

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The UK remains the fourth most highly indebted major economy in the world after Japan, Sweden and Canada, with total non financial debt of 276pc of GDP. The US is not far behind with debt of 264pc of GDP.

However, the real stand-out is China, which since the crisis began has seen debt spiral from a very manageable 140pc of GDP to 220pc and rising. This is obviously still lower than many developed economies, but the speed of the increase, combined with the fact that it is largely private sector debt, makes a hard landing virtually inevitable.

The only way the world can keep growing, it would appear, is by piling on debt. Not good, not good at all.

jez1_3055957a.jpg

http://www.telegraph.co.uk/finance/economics/11129108/Mass-default-looms-as-world-sinks-beneath-a-sea-of-debt.html

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Fastjet, a Stelios backed / owned african airline is complaining of losses and the revisiing of its loan costs as the USD has risen. What else is going to fall out of bed due to similar pressure? Odd that a rising dollar itself could be the trigger.

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