Huge public, corporate and household debt looks like the ‘new normal’ for the global economy – until the next crisis
In the “new normal” economic world, many beliefs have been turned on their head. Trade wars supposedly do notcause 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).
As Changyong Rhee, director of the Asia and Pacific Department at the IMF in Washington noted to me, “In emerging economies, debt is a problem, but if you look at how it has increased in advanced economies, that is also very large.”