The IMF WARNS : Global Economy faces $19 TN Corporate Debt Timebomb

The International Monetary Fund warns that global economic risks have risen as central banks reduce borrowing costs and that stronger oversight is needed ease threats to an already shaky expansion. The IMF Warns About Valuations, Pensions, and Rising Corporate Debt . As more of the world moves toward lower rates, investors, including pension funds and insurers, have pushed into riskier and more illiquid investments, stretching valuations . Welcome to The Atlantis Report . The International Monetary Fund heightened its warnings for the corporate debt market on Wednesday, as investors search for richer returns in riskier assets after recent interest rate cuts by central banks. As more of the world moves toward lower rates, investors, including pension funds and insurers, have pushed into riskier and more illiquid investments, stretching valuations, according to a report released Wednesday by the International Monetary Fund. Low interest rates are encouraging companies to take on a level of debt that risks becoming a $19tn time bomb in the event of another global recession, the International Monetary Fund has said. In its half-yearly update on the state of the world’s financial markets, the IMF said that almost 40% of the corporate debt in eight leading countries – the US, China, Japan, Germany, Britain, France, Italy and Spain – would be impossible to service if there was a downturn half as serious as that of a decade ago. The IMF noted that the stimulus provided by central banks in both developed and developing countries had the side-effect of encouraging firms to borrow more, even though many would have trouble paying it back. About 70% of economies globally have moved toward a more-accommodative monetary stance. Interest rate cuts from the Federal Reserve and others have bolstered stock markets and cushioned some of the blow to global growth from trade and other geopolitical tensions. But the trend also has brought risks, such as stretched valuations in emerging- and frontier-market stock and bond markets, as well as U.S. and Japanese stocks, and rising corporate and government debt levels, according to the IMF’s assessment of the stability of global financial markets, which was released as finance ministers and central bankers gather in Washington for the IMF’s annual meeting this week. Specifically, the IMF said a global downturn half as severe as the one spurred by the last financial crisis would result in $19 trillion of corporate debt being considered “at risk”, which the IMF defines as debt from firms whose earnings would not cover the cost of their interest expenses. The IMF also cautioned the low interest rate environment has driven up demand for debt in emerging and frontier economies, with external debt climbing to 160% of exports, compared with 100% in 2008. In a sharp downturn, it could become difficult to sustain or roll over those large debt obligations. In America , The policy easing that has helped support global growth has also fueled a further increase of financial risks, and threats to global growth and financial stability remain “firmly skewed to the downside. the policy makers “urgently need to take action to tackle financial vulnerabilities that could exacerbate the next economic downturn. As credit standards for new leveraged loans appear to have deteriorated further over the past six months, the loans to firms with especially high debt now exceed earlier peaks in 2007 and 2014. The historically high level of business debt and the recent concentration of debt growth among the riskiest firms could pose a risk to those firms and, potentially, their creditors. The difference between now and 2008 are central banks doing massive money printing. Take that away and we are FAR WORSE off now than in 2008 since Lehman. The economics of globalisation has always had an Achilles’ heel. The 1920s roared with debt based consumption and speculation until it all tipped over into the debt deflation of the Great Depression. No one realised the problems that were building up in the economy as they used an economics that doesn’t look at private debt, neoclassical economics. The 1920s in the US could have been a one off, but now it’s global. What’s wrong with neoclassical economics? #1.The belief in the markets and price discovery gets everyone thinking you are creating real wealth by inflating asset prices. #2. Bank credit pours into inflating asset prices rather than creating real wealth (as measured by GDP) and no one is looking at the debt building up. #3. No one realizes bank credit impoverishes the future. the build up to 1929 and 2008 were very similar and so we should have had a Great Depression after 2008, but saving the banks did stop that. It is saving the banks and leaving the debt in place that leads to the balance sheet recession the Japanese have been experiencing for the last thirty years. this processes was at work in the Japanese economy since the 1990s, which are at now at work throughout the global economy. Debt repayments to banks destroy money, this is the problem. Milton Freidman was a good salesman though, pity about the economics. He sold us 1920s neoclassical economics as a new, scientific economics for globalisation. What a salesman. Make sure you put some complex maths on top Milton; otherwise everyone will see straight through your little scam. Tell the suckers what they want to hear Milton; it’s the fraudster’s most potent weapon. The Koch brothers were like putty in his hands. Debt-based money went global, so debt-based money bubble busts went global. 2+2=4.









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