View more on these topics

Global debt reaches all time high as IMF calls for govt intervention

Fixed-Income-Portfolio-Coins-Pounds-Growth-700x450.jpg

Global debt has surpassed $152tr (£120tr) for the first time ever, according to the International Monetary Fund.

The IMF warns that the debt mountain is dragging on economic growth and could lead to the economic recovery after the financial crises turning back in to a recession.

Two thirds of the debt lies in the private sector, which the IMF said could carry “great risks” when the liabilities become excessive.

In its Fiscal Monitor study for 2016, released yesterday, the IMF says: “The sheer size of debt could set the stage for an unprecedented private deleveraging process that could thwart the fragile economic recovery.”

The IMF called for government intervention in private financial institutions such as banks and asset managers to help wind down private debt burdens.

The IMF says: “The path toward strong growth in those countries mired in a debt overhang may require decisive and prompt action to repair the balance sheets of banks – a clear priority in some European countries.”

It adds: “Generally, where the financial system is under severe stress, resolving the underlying problem quickly is critical. When the problems in the non-financial sector have not yet migrated to the banking sector, well-designed and well-targeted fiscal interventions in the form of government-sponsored programs to restructure private debt—which can include measures such as subsidies for creditors to lengthen maturities, guarantees, direct lending, and asset management companies—can create incentives for the cleanup to take place.”

In a separate report on global financial stability, the IMF warned that low interest rates and low growth had led to the rise of populist politics and policy uncertainty.

However, it noted that financial markets already anticipate negative interest rates in the EU and Japan to remain until at least 2020.

IMF deputy director for monetary and capital markets Peter Dattels says: “Medium-term risks…are building because we are entering a new era, characterised by chronic weak growth, prolonged low interest rates, and growing political and policy uncertainty. This could undermine the health of financial institutions and add to the forces of economic and financial stagnation.”

Recommended

Who are the adviser winners from the CISI awards?

Acumen Financial Planning was recognised as accredited financial planning firm of the year at the Chartered Institute for Securities and Investment Financial Planning Gala Awards 2016. The awards were held yesterday as part of the CISI Financial Planning Conference at the Celtic Manor Resort in Wales. Former Institute of Financial Planning president Jane Wheeler was […]

Telephone-Phone-Business-Finance-General-700.jpg
27

Advisers to record telephone calls under FCA Mifid rules

The FCA is planning to extend the requirement to record telephone calls under Mifid II to advisers. In a consultation paper released today, the regulator proposes extending the recording requirement to all “Article 3” firms, which includes financial advice firms and corporate finance boutiques. It says Financial Ombudsman Service information has shown the majority of […]

Chancellor distances himself from Osborne on economy

(Photo by Dan Kitwood/Getty Images) Chancellor Philip Hammond has sought to distance himself from his predecessor George Osborne’s policies to reduce the deficit, instead focusing on home ownership and economic growth. Speaking at the Conservative party conference in Birmingham today, Hammond said the decisions Osborne made in the aftermath of the financial crisis “pulled us […]

The Natixis Solution: H2O MultiReturns Fund

A product designed to bring some unique attributes to the crowded absolute return global macro space With diversification and risk management top of investors’ wish lists when it comes to alternatives, step forward the H2O MultiReturns Fund. H2O Asset Management is an independent boutique backed by Natixis Global Asset Management and has a 14-year track […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There is one comment at the moment, we would love to hear your opinion too.

  1. We live in an era where debt is seen to be acceptable and indeed even encouraged. After all when it comes to debt the UK are the world champions. I have campaigned for many years against profligacy and in favour of solvency, only to be told time and again how daft and naive I was.

    Our low interest rates encourage borrowing and discourages saving. Credit cards and all the paraphernalia of modern banking are aimed at getting people to spend what they don’t have. The latest manifestation is these ‘touch’ debit cards and the denigration of holding cash.
    I spent my financial services career encouraging people to get rid of their debt before even considering any of the goodies that our industry has to offer. All I have had since is thanks from grateful clients.

    A return to credit control and higher interest rates might engender some short term pain. But the good firms will survive and the poor ones will deservedly be pushed out. It would be an urgently needed spring clean. All that the current economic policies achieve is to allow lame ducks to survive on a sea of cheap money.

Leave a comment