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‘An Unexpected Shock Could Bring The Global Economy To Its Knees’: One Bank Says Secular Stagnation Now ‘Good Case’ Scenario
Each passing week brings new evidence to support the contention that the damage from the epochal shift towards protectionism and away from globalization and multilateralism is already done. It's now just a question of whether it gets worse.
The IMF and the OECD have slashed their outlook for the global economy repeatedly, warning time and again that without an end to the trade conflicts, fiscal stimulus or, ideally, both, the situation will become increasingly dire.
“The global economy is fa
Raise taxes on wealthier taxpayers and corporations and follow up with a tax cut to low to moderate incomes for a modest overall tax cut. Raise the minimum wage substantially on a regular basis over the next decade. Enact infrastructure bank legislation and increase spending on education. Cut tarriffs or increase free trade zones such as TPP, USMCA etc. Embrace research and development on climate change solutions. Consider implementing a VAT with provisions to make the VAT progressive or income neutral in order to pay for universal health care and lower payroll taxes on employment for medicare and social security. Lower the age for medicare to 50 and offer medicare to children under 18, and offer a public option for health care plans so as to reduce overall spending on health care. Cut defense spending as a % of GDP in the US. All these initiatives will help the economy grow by making it more efficient and fairer.
Really nice report here, worth reading — just another perspective on reform with lots of good info:
NEW RISKS TO
GLOBAL FINANCIAL
STABILITY
(OCTOBER 2019)
After the 2008 financial crisis, the global non-financial
corporate sector has significantly stepped up its bor-
rowing activity, boosting the outstanding amount of
debt to $72.6 trillion (or 91.4 percent of world GDP) as
of the first quarter of 2019, according to the Institute
of International Finance. This level of debt well exceeds
that of the government sector’s $67 trillion (or 87.2 per-
cent of GDP), reflecting rising leverage by the corpo-
rate sector–whose debt-to-EBITDA (earnings before
interest, tax, depreciation, and amortization) ratio has
increased to 4.8 times at the end of 2018, compared
with four times in 2011, according to Standard & Poor’s
(S&P) Global.8
Of particular note is the shift from bank lending to cap-
ital-market financing, with the volume of annual corpo-
rate bond issuance having doubled from the average
of $860 billion before the 2008 crisis.
At the same time, the quality of the corporate bond
market has deteriorated steadily, despite the fact
that large international corporations have been prof-
itable. According to the Organisation for Economic
Cooperation and Development (OECD), the share of
BBB-rated bonds–just one grade above high-yield
(HY) or junk status–is now about 54 percent of the
global investment-grade (IG) corporate bond market
(or about $7 trillion out of $13 trillion).9 Specifically for
the United States, BBB bonds amount to $3.2 trillion, or
about 53 percent of the US IG corporate bond market.
Historically, the rate of migration from BBB to HY bond
status (BB or lower) averages 4 percent within a one-
year time horizon, with a maximum rate of 10 percent.
10In 2009, during the latest recession, the migration
rate rose to 7.5 percent. If this were to happen again
in the next recession, there could be a potential supply
of up to $525 billion of newly downgraded junk bonds
within one year. This would have a significant “cliff ef-
fect” on the corporate bond market.
Basically, authorities are being pushed out of their
comfort zone (of regulating banks) to reconcile the
economy’s reliance on monetary accommodation with
the ensuing imbalances and distortions posing risks to
financial stability, and to develop lender-of-last-resort
facilities for banks outside the United States with huge
USD liability, as well as buyer-of-last-resort facilities for
various weak segments of the corporate debt markets,
including for non-US borrowers.
https://www.atlanticcouncil.org/wp-content/uploads/2019/10/NEW-RISKS-TO-GLOBAL-FINANCIAL-STABILITY-SJC-edits.pdf