New Report: Global Economies May Be on Path to Another Crash

Courtesy of Pam Martens.

U.S. Total Debt by Sector, 1916 to 2014, from International Center for Monetary and Banking Studies and CEPR Study

U.S. Total Debt by Sector, 1916 to 2014, from International Center for Monetary and Banking Studies and CEPR

Four noted economists have issued a report under the umbrellas of the International Center for Monetary and Banking Studies and the Centre for Economic Policy Research (CEPR) that is raising alarm bells at global central banks.

According to the report: “The world is still leveraging up; an overall, global deleveraging process to bring down the total debt-to-GDP ratio – or even to reduce its growth rate – has not yet started. On the contrary, the debt ratio is still rising to all-time highs.”

This, say the authors, has produced an “ongoing vicious circle of leverage and policy attempts to deleverage, on the one hand, and slower nominal growth on the other,” setting the basis “for either a slow, painful process of deleveraging or for another crisis, possibly this time originating in emerging economies (with China posing the highest risk).”

These are two key points from the study:

“Until 2008, the leveraging up was being led by developed markets, but since then emerging economies (especially China) have been the driving force of the process. This sets up the risk that they could be at the epicentre of the next crisis. Although the level of leverage is higher in developed markets, the speed of the recent leverage process in emerging economies, and especially in Asia, is indeed an increasing concern.

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