Geneva Warns That We Are Setting The Scene For Another Global Meltdown

Geneva

Governments are trying to reduce private and public borrowing. The main reason is that they do not want to see another global economic downturn. It is very easy to blame the bankers for the last time, because it was their fault, but people have to take some responsibly for the money they borrowed and spent.

Do you blame the mother that overfeeds or the child that overeats?

The bank is not our mother, nor does it have our best interests at heart, but we are also not children. People, businesses and governments borrowed and spent the money and their debt is their own fault. But, governments want people, businesses and government offices to borrow less for fear of another global economic downturn. The trouble is that the 16th Geneva report says one is on its way anyway.

There is a “Poisonous combination” among us

“Poisonous combination” was the phrase used by Geneva economists when they considered the impact of low growth and increasing public and private debt. There is a borrowing binge going on at the moment in Asia, with a lot of it going on in China, and this is going to have a long-term impact on the economy, especially when you consider that global debt is now at its highest ever.

Are we supposed to blame China?

Before making the point, let’s have a quick recap of world history. China are decimating their environment, killing off species at an extraordinary rate, chopping down their trees, ruining their countryside, poisoning their air, oppressing a weaker people and causing ground contamination at a massive level. Sounds terrible doesn’t it? It also sounds like the history of every developed country in the world.

The British are supposed to be an eloquent and thoughtful people, but they have decimated more plants, animals and people on this planet than the A-bomb, Julius the Roman Empire and World War 1&2.

The Americans offer service with a smile and always buy enough food so that there are leftovers. But, they have done everything that the Chinese are doing now and they still are still contributing more than 16.16% of the world’s greenhouse gasses. China contributes 24.65%, but per capita they only produce 6.195 tons, whereas a North American person produces 17.564 tons per year. If the Chinese population were the size of the American population, then their emissions would only count for around 6%.

…and the point is?

The Chinese are doing the things that other countries have done, and now they are doing the “debt” thing. We all knew it was a bad thing as the credit black hole became bigger. Private and public spending enjoyed its moment in the sun as the debt piled up, and then the bubble burst and global depression came about. Now the Chinese are having their moment in the sun whilst their debt builds up. Can the west honestly wag its finger at the Chinese? Wouldn’t that be a little hypocritical?

Plus, let’s not forget that the Chinese economy is still growing at 7.5%. Sure, it is not enough to support the growing debt that the Chinese people are accumulating, but they are not exactly swimming against a tidal wave either. If their growth were closer to 2%, then the world and the Chinese people should be suitably worried.

Spiraling debts may trigger another crisis

Global debts, obviously including the Chinese, are now at a new high. Take that on its own merit, and one would expect another global economic downturn. Public and private debt is at a new high, says the 16th annual Geneva report. Excluding the financial sector, the total world debt burden is now 212% of the global output. This is up from 180% in 2008.

To stop another global economic downturn, the policy makers should deter lending and capitalize on the very low interest rates. The rates are currently at a record low, and it shouldn’t be too hard to create sustainable growth; the British and Americans are doing it rather easily, and even the Australians are managing a reasonably strong growth rate.

What advice did the 16th annual Geneva report give?

Capitalizing on low interest rates and deterring exuberant lending were two of their tips. They want policy makers to keep a lid on overvalued property and overvalued stock markets because there are too many people investing in these overvalued assets with borrowed money and it is making the problem worse.

They also want a large program for the creation of electronic money (quantitative easing) so as to push down longer-term interest rates. They also want Brussels to write off debts from the worst hit countries in the Eurozone, though that is frankly very unlikely.

They are worried that the limited success of lowering world debt and increasing sustainable growth has now been stripped away by the new Chinese debt binge.

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