How global debt will destroy all economic gains

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UNITED STATES (VOP TODAY NEWS) — The world economy has gone through various stages of its development, but now it’s actually in a dead end, and the consequences of colossal incentives in the end can nullify the achievements of recent decades.

In recent years, world central banks have pumped the world economy with cheap money. Their main goal was to reduce the rates in the debt market so that companies could borrow at low interest and thereby finance their activities.

However, the scale of cash infusions exceeded all possible expectations, as a result even absolutely inefficient companies, in other words, zombie companies, could attract loans.

And in general, almost everyone who could and wanted to borrow, did it to the fullest. The numbers speak for themselves.

Global debt from 2003 to date has grown by almost $ 150 trillion and $ 70 trillion since 2008.

No matter how strong the crisis of 2008 was, any next one will be even more devastating, because the economy has since been additionally charged with $ 70 trillion of new debt. Moreover, to combat the new economic upheavals there are no such facilities anymore. Most of the world’s major central banks still use all possible instruments of monetary policy.

What the regulators have not tried in recent years: negative interest rates, LTRO, and even ETF purchases made by the Bank of Japan, which has nothing more to buy.

In addition, it is important to note that the securities are trapped. Even if they wish, they cannot normalize their policies, since a rise in interest rates will lead to an explosion of a debt bubble. Now companies and countries can refinance their colossal debts so far, but with an increase in interest rates, this will already be too expensive, which means that debts will have to be repaid: this is simply impossible, the debt burden is too high.

In most large countries, debt grew at a faster pace than GDP:

Global debt as a percentage of GDP reached a record high of 225%.

The growing debt burden will restrain economic growth, which will further complicate attempts to escape from this debt pit.

Over the past two centuries, the proportion of people living below the poverty line has greatly decreased. For example, if in 1820 there were 94.4% of these, then in 2015 there were already 9.6% of such people.

However, the debt problem can destroy this progress. Debts will need to be written off, and this is possible only in the course of various kinds of global conflicts. And although the world has evolved, there is such a danger.

It is obvious that shocks in the form of wars and other unpleasant events will destroy most of the economic achievements, including poverty reduction.

It is worth adding that the world Central Bank, of course, will try to delay the inevitable end, what they are already beginning to do. Just look at the latest statements by the Bank of Japan, which is ready for new incentives, the ECB, which does not rule out such a development of the situation, the People’s Bank of China and, of course, the Federal Reserve System.

This article is written and prepared by our foreign editors writing for VOP from different countries around the world – edited and published by VOP staff in our newsroom.

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