Debt Trap for the World Economy
HUSTON, TEXAS – September 19, 2018
The global financial crisis erupted 10 years ago. The global economy has managed to overcome the negative consequences, but whether this lesson has been learned by the Central banks and governments?
Over the past 10 years, the US economy has grown by 38% - quite a good result for advanced economies, but this growth was spurred by increasing debt. Over the same 10 years, the US national debt grew by 122%. We would like to remind you that the global financial crisis began as the collapse of the mortgage "bubble", which led to a debt crisis. In other words, over the past ten years, US public debt has increased by more than $3 for every dollar of GDP increase.
And not only the United States increases the level of debt without any limits or control, since 2009 the volume of sovereign debt worldwide has tripled to $63 billion and if we take into account various unsecured obligations, such as pension obligations, social obligations, the scale of the debt problem will be terrifying.
In 1987, American sociologist and political scientist Samuel Huntington noted that the United States had taken on such obligations abroad for which it was not willing to pay at home. But these warnings were largely ignored by politicians.
Instead, after Bill Clinton's presidency, when America had a budget surplus, the debt level rose steadily. It increased from $10.6 trillion during the George W. Bush administration to $19.9 trillion under Barack Obama. Despite the fact that Donald Trump promised in 2017 to liquidate the debt "within eight years", by the end of his first term it will exceed $21 trillion.
Recently, Goldman Sachs analysts stated that the financial forecast of the United States is "not very good". They predicted that the debt will increase from the current 4.1% of GDP to 7% by 2028.
If mandatory social expenditures and uncollected taxes are a major cause of the US debt crisis, participating in military campaigns abroad contributes greatly to the growth of the national deficit, which is rarely publicly recognized.
Worse still, US lawmakers have limited the ability of the FED to provide liquidity to non-Bank and foreign financial institutions with dollar obligations. In Europe, the growth of populist parties makes it difficult to implement reforms at the EU(international) level and to build the international institutions necessary to deal with the next financial crisis and recession.
Unlike in 2008, when governments had the political tools necessary to prevent “fiscal free fall,” the policies that should counter the next recession will be very limited. At the same time, the overall level of debt will be higher than during the previous crisis. When that happens, the next crisis and the subsequent recession may be even more severe and prolonged than the previous ones.