Me? I’m feeling OK about life. China continues its relentless ascent. The US, in spite of its chaotic political system, seems to be making progress. Europe (really only two and half sensible economies to begin with and now it seems finally acknowledging this fact) seems to be stable at least and wasn’t that G20 show in Beijing inspiring?
Sure, people could have been nicer to Mr. Putin but that Abe-Xi handshake plus the joint declaration by the world’s two biggest polluters that something has to be done reminded us that statesmanship isn’t dead. Thanksgiving is just around the corner and Christmas decorations are already up in my stores; all that’s missing is a few fluffy bunnies and a sepia tint. Isn’t the world (mostly) a jolly nice place?
Er, not entirely according to the work I want to highlight this week from Luigi Buttiglione, Philip R. Lane, Lucrezia Reichlin and Vincent Reinhart. In a paper they’ve co-authored for the International Center for Monetary and Banking Studies they remind us that not only has the world not delevered since the GFC, it’s geared up even more. Global debt to GDP is higher now than ever before in mankind’s recorded history and this debt blowout is largely accounted for by China. Turkey, Argentina and Thailand have also pitched in significantly and the authors worry what they call a ‘Type-3’ crisis may be around the corner (this is where you suffer a permanent loss of output together with slower growth)?
The paper isn’t as long as it may first appear. You can skip the preamble and begin on P.19 and the meat ends on P.86. If you want to just dig into their work on China that’s from page-66 through to page-72 and the whole can be accessed via the link below.
There is an antidote to this sort of analysis. I find putting fingers in ears and singing ‘Deck the halls..’ as loud as one can to be very effective. Seriously though to not be alive to this view, as unpleasant as it is, would probably be a mistake.
Happy Sunday?