The Herald reports:
It wasn’t the cheeriest of pre-Christmas speeches but David Lipton, first deputy managing director of the International Monetary Fund, was clearly not in a festive mood.
His message was clear.
History suggests we are due for another financial crisis and right now the world is no shape to cope with one.
We have had a global crisis in 1973, 1987, 1998 and 2008 so there is a fair chance of one before 2021.
With interest rates still low, central banks simply don’t have the firepower they did in 2008 to deal with a deep recession, he argued.
Trillions of dollars worth of quantitative easing cash (which central banks effectively printed to get though the GFC) has yet to be reabsorbed – limiting that option as an emergency response.
Meanwhile, public debt has been building in many countries – including the US – seriously limiting the option of using fiscal stimulus to deal with a crisis.
John Key has made this point also. Most economies have near zero cash rates and much higher public debt. This is one reason it is important NZ protects itself by keeping debt lower.
Lipton criticised China, the US and Europe for economic policies and politics that were not addressing risk.
The US was running up debt to stimulate its economy at a time when it did not need it
China’s household debt is 900% higher than in 2008. If there is a global correction, it is likely to be far more damaging that the GFC.