WEB Notes: Note the bold and underline we added below. You should read the whole article from the source. Everyone’s debt is peaking is the point with rate hikes to boot and of course how could we forget, inflation…
What does this all mean?
It means the global economic system is once again starting to teeter. It means there will be another economic crash. Now do not go run and hide and flip out.
Take a breath, go enjoy life a little, but stay out of debt. If you do not have the cash, you do not need to make the purchase.
As a reader of this site and news in general your job is to be aware of what is going on in our world so it does not take you by surprise, not to get an ulcer from it okay?
The untold story of the world economy is the potentially explosive interaction between the spreading trade war and the overhang of global debt, estimated at a staggering $247 trillion. That’s “trillion” with a “t.” The numbers are so large as to be almost incomprehensible.
Households, businesses and governments borrow on the assumption that they will service their debts either by paying the principle and interest or by rolling over the debts into new loans. But this works only if incomes grow fast enough to make the debts bearable or to justify new loans. When those ingredients go missing, delinquencies, defaults and panics follow.
Here’s where the trade war and debt may intersect disastrously. Since 2003, global debt has soared. As a share of the world economy (gross domestic product), the increase went from 248 percent of GDP to 318 percent. In the first quarter of 2018 alone, global debt rose by a huge $8 trillion. The figures include all major countries and most types of debt: consumer, business and government.
But to service these debts requires rising incomes, while an expanding trade war threatens to squeeze incomes. The resort to more tariffs and trade restrictions will make it harder for borrowers to pay their debts. At best, this could slow the global economy. At worst, it could trigger another financial crisis.
Note that the danger is worldwide; it’s not specific to the United States. In a new report, the Institute of International Finance, an industry research and advocacy group, says that the debts of some “emerging market” countries (Turkey, South Africa, Brazil, Argentina) seem vulnerable to roll-over risk: the inability to replace expiring loans. In 2018 and 2019, about $1 trillion of dollar-denominated emerging-market debt is maturing, says the IIF.