Discussion Board

Things are not looking very positive for the Global economy. Some officials are saying that the signs of a possible meltdown are being ignored and the potential impacts will be harsh, others are pushing for quick fixer uppers rather than thinking long term and a little bit of global economic chaos seems to be occurring. After the recession in 2008, banks had their regulations tightened in order not to repeat the same mistake. Corporations in the eight major economic countries are taking on more debt that they are able to service which is causing a slowdown in the economy. Unfortunately by fixing one sector and making sure that it stays strong, risks are spreading elsewhere- this time into the corporate sector. The eight leading countries have corporate debt over 40%. According to the International Monetary Fund, “low interest rates are encouraging companies to take on a level of debt that risks becoming a $19tn timebomb in the event of another global recession”.  The stimulus of central banks in all countries- developed or developing - continues to be to push firms to borrow more money even though many of them would have trouble paying it back in the long run. Officials are becoming insecure of this buildup of debt because they believe “ it makes the global financial system highly vulnerable.” Prices of goods such as food, medicine and cars will jump up tremendously and life will become difficult for the day to day skilled worker. This global economic debt is also causing vulnerability in the financial institutions that are not considered banks such as “pension funds and insurance companies”. The countries will simply not have enough money for public spending and they will face issues with the working class people. This way countries are risking immirgration, lack of a working hand and less productivity . In result to this, pension funds have increased their exposure to alternative asset classes and are taking riskier and less secure ways to generate targeted returns.  The International Monetary Fund believes that “countries need to look again at giving tax breaks on debt interest payments, which it believes encourages companies to raise money through borrowing”.

 

Elliot, L. (16 Oct 2019). Global Economy Faces $19tn Corporate Debt Timebomb, Warns IMF. Retrieved October 25, 2019 from

https://www.theguardian.com/business/2019/oct/16/global-economy-faces-19tn-corporate-debt-timebomb-warns-imf

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